When a company produces more units than it sells, absorption costing operating income will be less than variable costing operating income.

Question

Quizplus · Accepted Answer

When a company produces more units than it sells, absorption costing results in higher operating income compared to variable costing because fixed manufacturing overhead costs are spread over more units, reducing the cost per unit and increasing inventory values, which decreases the cost of goods sold and increases operating income.

When a Company Produces More Units Than It Sells, Absorption