What is the cause of the difference between absorption costing net operating income and variable costing net operating income?
A) Absorption costing deducts all manufacturing costs from net operating income; variable costing deducts only prime costs.
B) Absorption costing allocates fixed manufacturing costs between cost of goods sold and inventories; variable costing considers all fixed manufacturing costs to be period costs.
C) Absorption costing includes variable manufacturing costs in product costs; variable costing considers variable manufacturing costs to be period costs.
D) Absorption costing includes fixed administrative costs in product costs; variable costing considers fixed administrative costs to be period costs.

Question

Quizplus · Accepted Answer

The difference between absorption costing and variable costing net operating income is caused by the treatment of fixed manufacturing costs. Absorption costing allocates fixed manufacturing costs between cost of goods sold and inventories, while variable costing considers all fixed manufacturing costs to be period costs. This can result in different levels of net operating income under the two methods, particularly if inventory levels change during the period.

What Is the Cause of the Difference Between Absorption Costing