Question

George Corporation has no beginning inventory and manufactures a single product. If the number of units produced exceeds the number of units sold, then net operating income under the absorption method for the year will:

Answer 1

Answer:

be greater than the net operating income under variable costing

Explanation:

Under absorption costing method it includes the total cost of the product that is the fixed cost and variable cost to account for the production.

Whereas in variable costing we only consider the variable cost of production and deduct the fixed costs from the contribution margin.

As George corporation has no beginning inventory and production exceeds sales therefore cost of goods sold reduces( due to closing inventory) resulting in greater net operating income than in variable costing .