When there are no units in the beginning Finished Goods Inventory and the units produced are more than the units sold,the operating income will be higher under absorption costing than variable costing.

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Under absorption costing, fixed manufacturing overhead is included in the cost of goods sold, resulting in a higher cost of goods sold and lower net income when fewer units are sold. However, when there are no units in the beginning Finished Goods Inventory and the units produced are more than the units sold, there will be no overhead cost allocated to the units in ending inventory. This will result in a higher ending inventory value and therefore a higher operating income under absorption costing than variable costing.

When There Are No Units in the Beginning Finished Goods