When production is less than sales,the operating income will be lower under absorption costing than variable costing.Assume zero ending inventories.Which of the following gives the correct reason for the above statement?
A)all costs incurred have been recorded as expenses
B)a portion of the fixed manufacturing overhead is still in the ending Finished Goods Inventory account
C)the units in the beginning finished goods inventory have manufacturing fixed costs assigned to them
D)fixed manufacturing costs have not been considered while calculating the operating profits

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead costs are included in the cost of goods sold, which means they are assigned to the units produced. When production is less than sales, the beginning inventory (which includes fixed manufacturing costs) is sold, leading to higher costs and lower operating income compared to variable costing, where fixed costs are expensed in the period incurred.

When Production Is Less Than Sales,the Operating Income Will Be