If the unit level of inventory increases during an accounting period,then:
A)operating profit will be the same under absorption costing and variable costing.
B)more operating profit will be reported under absorption costing than variable costing.
C)less operating profit will be reported under absorption costing than variable costing.
D)the exact effect on operating profit cannot be determined.

Question

Quizplus · Accepted Answer

Under absorption costing, both fixed and variable manufacturing costs are included in the cost of inventory. When inventory levels increase, some of the fixed costs are allocated to the additional inventory and not expensed in the current period. This results in higher operating profit under absorption costing compared to variable costing, where only variable costs are included in inventory costs and all fixed costs are expensed in the period they are incurred.

If the Unit Level of Inventory Increases During an Accounting