Operating income reported under absorption costing will generally exceed operating income reported under variable costing for a given period in which of the following cases?
A) If production equals sales for that period.
B) If production exceeds sales for that period.
C) If sales exceed production for that period.
D) If the variable manufacturing overhead exceeds the fixed manufacturing overhead.

Question

Quizplus · Accepted Answer

When production exceeds sales, absorption costing will allocate more fixed overhead costs to the units produced and include them as part of inventory. This will result in higher inventory values and lower cost of goods sold, leading to a higher operating income compared to variable costing.

Operating Income Reported Under Absorption Costing Will Generally Exceed Operating