Net operating income computed using variable costing would exceed net operating income computed using absorption costing if:
A) units sold exceed units produced.
B) units sold are less than units produced.
C) units sold equal units produced.
D) the average fixed cost per unit is zero.

Question

Quizplus · Accepted Answer

Under variable costing, fixed manufacturing costs are treated as period costs and deducted from gross profit. Thus, net operating income is directly affected by the number of units sold as only variable costs are included in product costs. As such, if units sold exceed units produced, there would be less fixed manufacturing costs to be deducted from gross profit, resulting in a higher net operating income.

Net Operating Income Computed Using Variable Costing Would Exceed Net