For an accounting period during which the quantity of inventory at the end was smaller than the quantity at the beginning,income from operations reported under variable costing will be larger than income from operations reported under absorption costing.

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Under variable costing, only variable manufacturing costs are included in the cost of goods sold, while fixed manufacturing costs are treated as period expenses. Therefore, a decrease in inventory will result in a higher cost of goods sold and a higher income from operations. In contrast, under absorption costing, fixed manufacturing costs are included in the cost of goods sold, so a decrease in inventory will result in a lower cost of goods sold and a lower income from operations.

For an Accounting Period During Which the Quantity of Inventory