Net operating income reported under absorption costing will exceed net operating income reported under variable costing for a given period if:
A)production equals sales for that period.
B)production exceeds sales for that period.
C)sales exceed production for that period.
D)the variable manufacturing overhead exceeds the fixed manufacturing overhead.

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead costs are included in product costs and are only expensed when products are sold. Therefore, if production exceeds sales, more fixed manufacturing overhead costs will be assigned to inventory and carried over to the next period, resulting in a higher net operating income compared to variable costing where fixed manufacturing overhead is expensed immediately as period costs.

Net Operating Income Reported Under Absorption Costing Will Exceed Net