Variable costing net operating income is usually closer to the net cash flow of a period than is costing absorption net operating income.

Question

Quizplus · Accepted Answer

Variable costing only includes variable manufacturing costs in the product cost and treats fixed manufacturing costs as period expenses. This means that variable costing net operating income does not include fixed manufacturing overhead, which is not a cash expense. Therefore, variable costing net operating income is usually closer to the net cash flow of a period than is costing absorption net operating income, which includes both variable and fixed manufacturing costs in the product cost.

Variable Costing Net Operating Income Is Usually Closer to the Net