Assuming that the number of units produced is greater than the number of units sold, 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) Sales revenue will be less using absorption costing.

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead is allocated to each unit produced, so when production exceeds sales, some of these costs are deferred in inventory, leading to a higher net operating income compared to variable costing, where all fixed manufacturing overhead costs are expensed in the period they are incurred.

Assuming That the Number of Units Produced Is Greater Than