Which of the following formulas can often reconcile the difference between absorption- and variable-costing income?
A) Change in inventory units × predetermined variable-overhead rate per unit.
B) Change in inventory units ÷ predetermined variable-overhead rate per unit.
C) Change in inventory units × predetermined fixed-overhead rate per unit.
D) Change in inventory units ÷ predetermined fixed-overhead rate per unit.
E) (Absorption-costing income - variable-costing income) × fixed-overhead rate per unit.

Question

Quizplus · Accepted Answer

The difference between absorption and variable costing income is due to the treatment of fixed manufacturing overhead. Under absorption costing, fixed overhead is included in inventory costs, while under variable costing, it is expensed in the period incurred. The difference can be reconciled by multiplying the change in inventory units by the predetermined fixed-overhead rate per unit.

Which of the Following Formulas Can Often Reconcile the Difference