The difference in net income reported under direct costing versus the net income reported under absorption costing is calculated based on the increase or decrease in the units available for sale.

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The difference in net income reported under direct costing versus absorption costing is actually based on the increase or decrease in inventory levels, not the units available for sale. Under direct costing, only variable costs are included in product costs, whereas under absorption costing, both fixed and variable manufacturing costs are included. Changes in inventory levels affect how much of the fixed manufacturing costs are expensed in the period.

The Difference in Net Income Reported Under Direct Costing Versus