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Under variable costing, A. inventory costs will be lower than under absorption costing. B. inventory costs...

Under variable costing,

A. inventory costs will be lower than under absorption costing.
B. inventory costs will be higher than under absorption costing.
C. net operating income will always be lower than under absorption costing.
D. net operating income will always be higher than under absorption costing.
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Answer #1
  1. Inventory costs will be lower than under absorption costing.

Under the absorption, costing fixed manufacturing overhead becomes the part of ending inventory. Therefore, the ending inventory absorbs a portion of fixed manufacturing overhead. However, under variable costing, the fixed manufacturing overhead cost will not be included in the product cost but will be charged to the income statement. Therefore, no portion of fixed cost is absorbed by the ending inventory under variable cost.

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