When reconciling variable costing and absorption costing net operating income,fixed manufacturing overhead costs deferred in inventory under absorption costing should be added to variable costing net operating income to arrive at the absorption costing net operating income.

Question

Quizplus · Accepted Answer

This is correct. Under absorption costing, fixed manufacturing overhead costs are included in the cost of inventory and do not get expensed until the inventory is sold. Therefore, to reconcile the net operating income under absorption costing and variable costing, the deferred fixed manufacturing overhead costs in inventory must be added to the variable costing net operating income.

When Reconciling Variable Costing and Absorption Costing Net Operating Income,fixed