If production exceeds units sold, which of the following is TRUE concerning income?
A) A higher operating income will result under a variable costing income statement.
B) A lower operating income will result under an absorption costing income statement.
C) The same operating income will result under both a variable costing and absorption costing income statement.
D) A higher operating income will result under an absorption costing income statement.

Question

Quizplus · Accepted Answer

When production exceeds units sold, under absorption costing, some of the fixed manufacturing overhead costs are allocated to the units produced but not sold and are included in inventory. This defers the recognition of some fixed overhead expenses to future periods when these inventories are sold, leading to a higher operating income in the current period compared to variable costing, where all fixed overheads are expensed in the period they are incurred, regardless of the level of sales.

If Production Exceeds Units Sold, Which of the Following Is