Net Income reported under variable costing will exceed net income reported under

Question

Net Income reported under variable costing will exceed net income reported under full costing during a given period when:

Select one:

a. The number of units sold exceeds the number of units produced during the same period.

b. The number of units sold is equal to the number of units produced during the same period

c. The number of units produced exceeds the number of units sold.

d. Absorption costing will always produce the higher income because only the fixed costs associated with the units sold will be included in the cost of goods sold.

Explanation / Answer

Answer : A

Net Income reported under variable costing will exceed net income reported under full costing during a given period when The number of units produced exceeds the number of units sold.

Explanation:Variable costing and absorption costing usually produce different net operating income figures. The reason is that the fixed manufacturing overhead cost is not treated the same way under two costing methods. To understand how the difference in treatment of fixed manufacturing overhead cost changes the net operating income figures of two costing systems

The net operating income under variable costin more than the net operating income under absorption costing. When sales are more than production the fixed manufacturing overhead is deferred in inventory that causes a higher net operating income .

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