If production exceeds sales for the period, variable costing net operating income will typically be greater than absorption costing net operating income.

Question

Quizplus · Accepted Answer

If production exceeds sales for the period, then absorption costing will allocate a portion of the fixed manufacturing overhead costs to inventory, increasing the cost of goods sold and decreasing net operating income. On the other hand, variable costing only considers variable manufacturing costs as expenses, resulting in a lower cost of goods sold and a higher net operating income when production exceeds sales. Therefore, variable costing net operating income will typically be greater than absorption costing net operating income.

If Production Exceeds Sales for the Period, Variable Costing Net