When reconciling variable costing and absorption costing net operating income, fixed manufacturing overhead costs deferred in inventory under absorption costing should be deducted from variable costing net operating income to arrive at the absorption costing net operating income.

Question

Quizplus · Accepted Answer

Fixed manufacturing overhead costs deferred in inventory under absorption costing are added to variable costing net operating income to arrive at the absorption costing net operating income, not deducted. This is because these costs are treated as an expense in the period they are incurred under variable costing but are allocated to the cost of goods sold and inventory under absorption costing.

When Reconciling Variable Costing and Absorption Costing Net Operating Income