If the number of units produced is less than the number of units sold,which of the following statements is true when comparing operating profit under absorption versus variable costing?
A)Sales revenue will be less when absorption costing is used.
B)Absorption costing will produce a higher operating profit.
C)Operating profit is the same under both methods.
D)Variable costing will produce a higher operating profit.
E)None of the answer choices is correct.

Question

Quizplus · Accepted Answer

When the number of units sold is greater than the number of units produced, absorption costing will allocate a portion of fixed costs to inventory, increasing the cost per unit of inventory. Variable costing, on the other hand, only allocates variable costs to inventory, resulting in a lower cost per unit. Therefore, since fewer units have been produced than sold, the fixed costs that would have been allocated to inventory under absorption costing will instead be immediately expensed under variable costing, resulting in a higher operating profit for variable costing.

If the Number of Units Produced Is Less Than the Number