If inventory has declined,operating income will be higher under variable costing than it is under absorption costing.

Question

Quizplus · Accepted Answer

This is because under variable costing, fixed manufacturing costs are not included in the cost of goods sold and are instead expensed in the period incurred. Therefore, if inventory levels decrease, there are fewer fixed costs to allocate to the units sold, resulting in a higher operating income compared to absorption costing where fixed manufacturing costs are included in the cost of goods sold.

If Inventory Has Declined,operating Income Will Be Higher Under Variable