Question

If units produced are more than units sold, Group of answer choices operating income is the...

If units produced are more than units sold,

Group of answer choices

operating income is the same under both absorption costing and variable costing

operating income is higher under absorption costing compared to variable costing

operating income is higher under variable costing compared to absorption costing

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Answer #1

Correct Option : operating income is higher under absorption costing compared to variable costing

Reason: If units produced is more than units sold it means there will be ending inventory. Under variable costing all of the fixed manufcaturing overhead is deducted however under absorption costing , fixed manufacturing OH apsorbed to units sold are deducted. Fixed manufacturing overhead allocated to ending inventory is deferred to next period which make income higher than variabe.

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