When is net income the largest?
A)Absorption costing net income exceeds variable costing net income when units produced and sold are equal.
B)Variable costing net income exceeds absorption costing net income when units produced exceed units sold.
C)Absorption costing net income exceeds variable costing net income when units produced are less than units sold.
D)Absorption costing net income exceeds variable costing net income when units produced are greater than units sold.

Question

Quizplus · Accepted Answer

Absorption costing includes fixed manufacturing overhead as part of the product costs, which are then allocated to the units produced. When production exceeds sales, some of these costs are deferred in inventory under absorption costing, leading to a higher net income compared to variable costing, where all fixed manufacturing overhead is expensed in the period incurred.

When Is Net Income the Largest