Operating income determined using absorption costing can be reconciled to operating income determined using variable costing by computing the difference between which of the following?
A) Fixed manufacturing overhead costs deferred in or released from inventories.
B) Discretionary costs included in the beginning and ending inventories.
C) Gross margin (absorption costing method) and contribution margin (variable costing method).
D) Sales as recorded under the variable costing method and sales as recorded under the absorption costing method.

Question

Quizplus · Accepted Answer

The difference between operating income determined using absorption costing and variable costing can be reconciled by computing the fixed manufacturing overhead costs deferred in or released from inventories. This is because absorption costing includes fixed manufacturing overhead costs in inventory, while variable costing expenses all fixed manufacturing overhead costs in the period incurred. Therefore, the difference in operating income between the two methods can be attributed to the fixed manufacturing overhead costs in inventory, which can be computed by subtracting the fixed manufacturing overhead costs deferred in or released from inventories under absorption costing from the fixed manufacturing overhead costs recognized under variable costing.

Operating Income Determined Using Absorption Costing Can Be Reconciled to Operating