If the first month of production is 6,000 units and sales are 5,500 units, absorption costing will yield a lower operating income than will variable costing.

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Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead costs are allocated to each unit produced, so if not all units are sold, some of these costs are deferred to future periods as part of inventory. This can result in higher operating income compared to variable costing, where all fixed manufacturing overhead costs are expensed in the period they are incurred, regardless of the number of units sold. Since in this scenario, production exceeds sales, absorption costing would likely result in a higher operating income due to some fixed costs being included in the ending inventory valuation.

If the First Month of Production Is 6,000 Units and Sales