When monthly production volume is constant and sales volume is less than production, income determined with variable costing procedures will
A) always be greater than income determined using absorption costing.
B) always be less than income determined using absorption costing.
C) be equal to income determined using absorption costing.
D) be equal to contribution margin per unit times units sold.

Question

Quizplus · Accepted Answer

When monthly production volume is constant and sales volume is less than production, there will be an increase in inventory levels, leading to higher allocations of fixed manufacturing costs under absorption costing. This will result in higher reported income under absorption costing compared to variable costing, where fixed manufacturing costs are expensed in the period incurred. Thus, income determined with variable costing procedures will always be less than income determined using absorption costing in this scenario.

When Monthly Production Volume Is Constant and Sales Volume Is