In its first year of business,Greenlam,Inc.produced 600 units and sold 400 units.If Greenlam uses variable costing,________.
A) its operating income for the period will be higher than under absorption costing
B) its operating income for the period will be lower than under absorption costing
C) its value of ending Finished Goods Inventory reported in the balance sheet will be higher than under absorption costing
D) its operating income will be the same as under absorption costing

Question

Quizplus · Accepted Answer

Under variable costing, only variable production costs are included in the cost of goods sold. Fixed production costs are treated as period expenses and are not included in the cost of goods sold. Therefore, if Greenlam uses variable costing, its cost of goods sold will be lower than under absorption costing, resulting in a lower operating income. The value of ending Finished Goods Inventory reported in the balance sheet would be the same under both costing methods as it is not affected by the choice of costing method.

In Its First Year of Business,Greenlam,Inc