Question

Garcia's inventory increased during the year. On the basis of this information, income reported under absorption...

Garcia's inventory increased during the year. On the basis of this information, income reported under absorption costing: Select one: a. will differ from that reported under variable costing, the direction of which cannot be determined from the information given. b. will be lower than that reported under variable costing. c. will be higher than that reported under variable costing. d. will be less than that reported in the previous period. e. will be the same as that reported under variable costing.

Homework Answers

Answer #1

When inventory increases income reported under absorption costing will be higher than that reported under variable costing because under absorption costing in calculating unit product cost fixed overhead cost is also included and thus in calculating ending inventory fixed overhead cost is included while calculating unit product cost under variable costing fixed overhead cost is not considered and hence not included in ending inventory due to this difference income reported under absorption costing is higher than variable costing as cost is higher in variable costing than in absorption costing.

Hence option c is correct.

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