One way of determining the difference between operating profits for absorption costing and variable costing is to:
A)subtract fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead in ending inventory.
B)add fixed manufacturing costs to the production-volume variance.
C)multiply the number of units produced by the budgeted fixed manufacturing cost rate.
D)subtract sales of the previous period from sales of this period.

Question

Quizplus · Accepted Answer

To determine the difference between operating profits for absorption costing and variable costing, we need to compare the fixed manufacturing overhead allocated to inventory under absorption costing and the fixed manufacturing overhead expensed under variable costing. By subtracting fixed manufacturing overhead in beginning inventory from fixed manufacturing overhead in ending inventory, we can calculate the fixed overhead allocated to inventory under absorption costing. This can then be compared to the fixed overhead expensed under variable costing to determine the difference in operating profits between the two methods. Therefore, option A is the best choice. B, C, and D do not provide relevant information for comparing the operating profits under absorption and variable costing.

One Way of Determining the Difference Between Operating Profits for Absorption