When production is less than sales volume,how will net income under absorption costing compare to profits using variable costing procedures?
A)Net income under absorption costing will be greater than profits using variable costing procedures.
B)Net income under absorption costing will be less than profits using variable costing procedures.
C)Net income under absorption costing will be equal to profits using variable costing procedures.
D)Net income under absorption costing will be randomly different than profits using variable costing procedures.

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead costs are included in the product cost and are expensed when the product is sold. Therefore, if production is less than sales volume, some of the fixed manufacturing overhead costs will be expensed in the current period, reducing net income. On the other hand, variable costing only includes variable manufacturing costs in the product cost, so fixed manufacturing overhead costs are expensed in the current period. As a result, net income under variable costing will be higher than under absorption costing in this scenario. Therefore, net income under absorption costing will be less than profits using variable costing procedures.

When Production Is Less Than Sales Volume,how Will Net Income