Under which inventory costing method could increases or decreases in income from operations be misinterpreted to be the result of operating efficiencies or inefficiencies?
A) only variable costing
B) only absorption costing
C) both variable and absorption costing
D) neither variable nor absorption costing

Question

Quizplus · Accepted Answer

Absorption costing includes fixed manufacturing overhead costs as part of the product cost, while variable costing only includes variable manufacturing costs. As a result, changes in production volume can impact income from operations differently under absorption costing versus variable costing. This can lead to misinterpretation of operating efficiencies or inefficiencies, as changes in production volume may impact income from operations even if there are no actual changes in efficiency.

Under Which Inventory Costing Method Could Increases or Decreases in Income