Question

Under absorption costing, fixed overhead is allocated to products sold, so when production is greater than units sold, net income will be ___________(greater, less) than income calculated under variable costing.

Answer 1

Answer:Greater

Explanation: Absorption costing is a cost accounting procedure which is used in the costing of both the direct and indirect expenses involved in the production of a specific product or service over a given period of time.

Fixed overhead costs are specifically concerned with goods sold while variable costs are specifically concerned with all the goods manufactured.

THE COST THAT WILL BE ASSOCIATED WITH FIXED OVERHEAD COST WILL BE LESS WHEN COMPARED TO THAT CALCULATED USING VARIABLE COSTING AND THIS WILL CAUSE THE NET INCOME CALCULATED USING THE FIXED OVERHEAD COST TO BE GREATER THAN THE VARIABLE COSTING APPROACH.