If inventory has not increased or decreased, but has stayed the same, operating income will be higher under variable costing than it is under absorption costing.

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Quizplus · Accepted Answer

Under variable costing, operating income is not affected by changes in inventory levels because all fixed manufacturing overhead costs are expensed in the period they are incurred. In contrast, under absorption costing, part of the fixed manufacturing overhead costs are allocated to the cost of goods sold and part to the inventory. If inventory levels remain the same, the total amount of fixed manufacturing overhead costs allocated to cost of goods sold and ending inventory under absorption costing would be the same as the total fixed costs expensed under variable costing, leading to the same operating income under both methods.

If Inventory Has Not Increased or Decreased, but Has Stayed