If more units are sold than are produced in a period variable costing income will be greater than absorption costing income.

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Quizplus · Accepted Answer

In variable costing, fixed manufacturing overhead costs are treated as period costs and are expensed in the period they are incurred, whereas in absorption costing, fixed manufacturing overhead costs are treated as a product cost and are included in the cost of goods sold. Therefore, if more units are sold than produced in a period, variable costing income will not include the fixed overhead costs that are included in absorption costing income, resulting in a higher variable costing income.

If More Units Are Sold Than Are Produced in a Period