Question

g For a period during which the quantity of inventory at the end was smaller than that at the beginning, income from operations reported under variable costing will be smaller than income from operations reported under absorption costing. Group of answer choices False True

Answer 1

Answer: True

Explanation:

Variable costing is a method which is used to assign the variable costs to the inventory. In this approach, all the overhead costs will be charged to expense during the period that they were incurred, while the direct materials and the variable overhead costs will be assigned to the inventory.

In this scenario, for a period whereby the quantity of inventory at the end was smaller than the quantity of inventory at the beginning, the income from operations that is reported under the variable costing will be smaller than the income from the operations that is reported under absorption costing. This is because the beginning inventory inventory has been released at a rate that is higher at than the ending inventory thereby making the income under the absorption costing to be smaller.