For a period during which the quantity of product manufactured exceeds the quantity sold, operating income reported under absorption costing will be larger than operating income reported under variable costing.

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead is allocated to each unit produced, so when production exceeds sales, some of these costs are deferred in inventory, leading to higher operating income compared to variable costing, where all fixed manufacturing overhead costs are expensed in the period incurred.

For a Period During Which the Quantity of Product Manufactured