Suppose monthly production volume is constant and sales volume is less than production.How will net income react when using variable-costing procedures?
A)It will be greater than net income determined using absorption costing.
B)It will be less than net income determined using absorption costing.
C)It will be equal to net income determined using absorption costing.
D)It will be equal to contribution margin per unit times units sold.

Question

Quizplus · Accepted Answer

When using variable-costing procedures, only variable manufacturing costs are considered as product costs, and fixed manufacturing overhead cost is treated as a period cost. As a result, if the sales volume is less than the production volume, there will be some fixed manufacturing overhead costs included in ending inventory under absorption costing, which can increase net income. However, under variable costing, these fixed costs are expensed as period costs and do not affect net income in the same way. Therefore, net income under variable costing will be less than net income determined using absorption costing.

Suppose Monthly Production Volume Is Constant and Sales Volume Is