Which of the following statements is true?
A) Absorption costing income exceeds variable costing income when units produced and sold are equal.
B) Variable costing income exceeds absorption costing income when units produced exceed units sold.
C) Absorption costing income exceeds variable costing income when units produced are less than units sold.
D) Absorption costing income exceeds variable costing income when units produced are greater than units sold.

Question

Quizplus · Accepted Answer

Absorption costing includes both variable and fixed manufacturing costs in the cost of a product, whereas variable costing includes only the variable manufacturing costs. When more units are produced than sold, the unsold units' fixed manufacturing costs are included in inventory under absorption costing, but expensed under variable costing. This results in higher income under absorption costing compared to variable costing, because some of the fixed costs are deferred in inventory rather than being expensed in the period.

Which of the Following Statements Is True