Variable costing net operating income is usually closer to the net cash flow of a period than is absorption costing net operating income.

Question

Quizplus · Accepted Answer

This is because variable costing only includes variable manufacturing costs in the cost of goods sold, while absorption costing includes both variable and fixed manufacturing costs. As fixed costs do not immediately affect cash flow, they can distort the comparison between net operating income and net cash flow.

Variable Costing Net Operating Income Is Usually Closer to the Net