For a period during which the quantity of product manufactured is less than 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 units produced, so if fewer units are produced than sold, some of the fixed costs remain in inventory, potentially reducing operating income compared to variable costing, where all fixed costs are expensed in the period incurred.

For a Period During Which the Quantity of Product Manufactured