Net operating income computed under variable costing would exceed net operating income computed using absorption costing if:
A) units sold exceed units produced.
B) units sold are less than units produced.
C) units sold equal units produced.
D) the average fixed cost per unit is zero.

Question

Quizplus · Accepted Answer

Under variable costing, fixed manufacturing costs are treated as period costs and are not included in the cost of goods sold. As a result, net operating income computed under variable costing will be higher when units sold exceed units produced, as fixed costs will be spread over a larger number of units sold. In contrast, under absorption costing, fixed manufacturing costs are included in the cost of goods sold, regardless of whether the units are sold or not, which can result in lower net operating income when the number of units sold is lower than the number of units produced. The average fixed cost per unit being zero is not a relevant factor in determining the difference between net operating income under variable and absorption costing.

Net Operating Income Computed Under Variable Costing Would Exceed Net