Assuming that the number of units produced is less than the number of units sold, which of the following statements is true when comparing net income using absorption and variable costing?
A)Absorption costing will yield a higher net income.
B)Net income will be the same under both methods.
C)Variable costing will yield a higher net income.
D)The sales price per unit will be less using absorption costing.
E)None of these statements is true.

Question

Quizplus · Accepted Answer

When the number of units produced is less than the number of units sold, absorption costing includes fixed manufacturing overhead costs (which includes the cost of producing the units that remain in inventory) in the cost of goods sold, resulting in a lower net income than variable costing, which only includes variable manufacturing costs in the cost of goods sold. Therefore, option C is correct as variable costing will yield a higher net income. The other options are incorrect - option A is false, option B is only true if the number of units produced equals the number of units sold, option D is irrelevant to the question, and option E is false.

Assuming That the Number of Units Produced Is Less Than