Generally speaking, net operating income under variable and absorption costing will:
A) always be equal.
B) never be equal.
C) be equal only when production and sales are equal.
D) be equal only when production exceeds sales.

Question

Quizplus · Accepted Answer

Net operating income under variable and absorption costing methods will be equal only when production equals sales because under both costing methods, all variable costs are expensed in the period incurred. However, under absorption costing, fixed manufacturing overhead is allocated to units produced and only expensed as goods are sold. Therefore, when production equals sales, the full cost (including fixed manufacturing overhead) is expensed under both methods, leading to equal net operating income.

Generally Speaking, Net Operating Income Under Variable and Absorption Costing