Which of the following formulas can often reconcile the difference between absorption-costing net income and variable-costing net income?
A)Change in inventory units x Predetermined variable-overhead rate per unit.
B)Change in inventory units ÷ Predetermined variable-overhead rate per unit.
C)Change in inventory units x Predetermined fixed-overhead rate per unit.
D)Change in inventory units ÷ Predetermined fixed-overhead rate per unit.
E)(Absorption-costing net income - Variable-costing net income) x Fixed-overhead rate per unit.

Question

Quizplus · Accepted Answer

The difference between absorption-costing and variable-costing net income is due to the treatment of fixed manufacturing overhead. Under absorption costing, fixed overhead is included in inventory costs, while under variable costing, it is expensed in the period incurred. The formula "Change in inventory units x Predetermined fixed-overhead rate per unit" accounts for the fixed overhead costs deferred in or released from inventory, reconciling the income difference.

Which of the Following Formulas Can Often Reconcile the Difference