What factor related to manufacturing costs causes the difference in operating income computed using absorption costing and operating income computed using variable costing?
A)Absorption costing expenses all costs,whether fixed or variable.
B)Absorption costing "inventories" all direct manufacturing costs.
C)Absorption costing "inventories" all fixed manufacturing and period costs.
D)Absorption costing "inventories" all fixed manufacturing costs.

Question

Quizplus · Accepted Answer

The factor related to manufacturing costs that causes the difference in operating income computed using absorption costing and operating income computed using variable costing is that absorption costing "inventories" all fixed manufacturing costs. This means that under absorption costing, fixed manufacturing costs are included in the cost of goods sold and inventory valuation, whereas under variable costing, only variable manufacturing costs are included in the cost of goods sold. This results in a higher operating income under absorption costing when there is an increase in inventory levels, because fixed manufacturing costs are deferred to later periods when the inventory is sold.

What Factor Related to Manufacturing Costs Causes the Difference in Operating