Absorption costing will produce a larger operating profit than variable costing if
A) Fixed production overhead increases
B) Fixed production overhead decreases
C) Units produced exceed units sold
D) Units sold exceed units produced

Question

Quizplus · Accepted Answer

Absorption costing allocates fixed production overhead to units produced, so if units produced exceed units sold, some fixed costs are included in inventory, resulting in higher operating profit compared to variable costing, which expenses all fixed costs in the period incurred.

Absorption Costing Will Produce a Larger Operating Profit Than Variable