When production exceeds sales for a given year, the income reported under absorption costing and variable costing will be:
A)always the same.
B)typically different.
C)always higher under absorption costing.
D)always higher under variable costing.
E)always the same or higher under absorption costing.

Question

Quizplus · Accepted Answer

When production exceeds sales for a given year, there will be an increase in ending inventory. This increase in inventory value will be expensed under absorption costing method, resulting in higher reported income compared to variable costing method which only expenses the variable production costs against sales. Therefore, the income reported under absorption costing and variable costing will typically be different.

When Production Exceeds Sales for a Given Year, the Income