Net income reported under variable costing will exceed net income reported under absorption costing for a given period if:
A)Production equals sales for that period.
B)Production exceeds sales for that period.
C)Sales exceed production for that period.
D)The variable overhead exceeds the fixed overhead.

Question

Quizplus · Accepted Answer

Under variable costing, only variable manufacturing costs are included in the cost of goods sold, while fixed manufacturing costs are treated as period expenses. Therefore, if sales exceed production, variable costing will report a higher net income because there will be less fixed manufacturing costs to allocate over the units sold, compared to absorption costing where fixed manufacturing costs are allocated over all units produced.

Net Income Reported Under Variable Costing Will Exceed Net Income