Assuming the number of units sold and produced are the same, which of the following statements is true when comparing net operating income using absorption and variable costing?
A) Absorption costing will yield a higher net operating income.
B) Variable costing will yield a higher net operating income.
C) Net operating income will be the same under both methods.
D) Variable costing will have higher sales revenue.

Question

Quizplus · Accepted Answer

When the number of units sold and produced are the same, absorption costing and variable costing will result in the same net operating income. The difference between the two methods arises when the number of units produced differs from the number of units sold, resulting in different treatment of fixed manufacturing costs. Therefore, net operating income will be the same under both methods in this scenario. Option A and B are incorrect because they incorrectly suggest that one method yields a higher net operating income than the other, which is not the case when the production and sales unit volumes are the same. Option D is also incorrect because variable costing does not affect sales revenue; it only affects the way in which costs are assigned to products.

Assuming the Number of Units Sold and Produced Are the Same