When the unit level of inventory increases during an accounting period,operating profit is greater under variable costing than absorption costing.

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Under variable costing, only variable manufacturing costs are included in product costs, whereas under absorption costing, both variable and fixed manufacturing costs are included. When inventory levels increase, absorption costing allocates a portion of fixed manufacturing costs to the increased inventory, reducing the expense recognized during the period and potentially increasing operating profit compared to variable costing, where all fixed costs are expensed in the period incurred.

When the Unit Level of Inventory Increases During an Accounting