For a period during which the quantity of product manufactured exceeded the quantity sold,income from operations reported under absorption costing will be smaller than income from operations reported under variable costing.

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead is allocated to each unit produced, so when production exceeds sales, some of the fixed manufacturing overhead costs are included in the ending inventory and not expensed in the current period. This results in higher reported income from operations compared to variable costing, where all fixed manufacturing overhead costs are expensed in the period they are incurred, regardless of the level of sales.

For a Period During Which the Quantity of Product Manufactured