If the units produced exceed unit sales, which method would you expect to show the higher net operating income, variable costing or absorption costing? why?

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Kayleekrutilek2390idn Kayleekrutilek2390idn

04-08-2022
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If the units produced exceed unit sales, which method would you expect to show the higher net operating income, variable costing or absorption costing? why?

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Tutorconsortium365idn Tutorconsortium365idn · Answer 1 · 2022-08-09T05:38:09-04:00

Absorption costing is expected to show higher net operating income.

Why does this happen ?

As, absorption costing often displays larger net operating income than variable costing if output surpasses sales. Inventory levels rise when output outpaces sales, and a portion of the fixed manufacturing overhead cost for the current period is delayed in inventory to the following month due to under-absorption. In contrast, variable costing automatically deducts all of the current period's fixed production overhead costs.

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