When the monthly units produced are constant, and sales in units are less than the units produced, net income determined with absorption costing procedures will
A)always be greater than operating income determined with variable costing.
B)always be less than operating income determined with variable costing.
C)be equal to operating income determined using variable costing.
D)be equal to contribution margin per unit times units sold.

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead is allocated to each unit produced, so when sales are less than production, some fixed overhead costs remain in inventory, leading to higher net income compared to variable costing, where all fixed overhead is expensed in the period incurred.

When the Monthly Units Produced Are Constant, and Sales in Units