Net income under both the direct costing and absorption costing approaches will always equal.

Question

Quizplus · Accepted Answer

Net income under direct costing and absorption costing can differ because of the treatment of fixed manufacturing overhead costs. Direct costing only includes variable manufacturing costs in the cost of goods sold, while absorption costing includes all manufacturing costs, both fixed and variable, in the cost of goods sold. As a result, net income can differ under these two methods if inventory levels change or production levels fluctuate.

Net Income Under Both the Direct Costing and Absorption Costing