Question

Net operating income reported under absorption costing will exceed net operating income reported under variable costing for a given period if: A. production equals sales for that period. B. production exceeds sales for that period. C. sales exceed production for that period. D. the variable manufacturing overhead exceeds the fixed manufacturing overhead.

Answer 1

Answer:

Statement B is correct

Explanation:

Under absorption costing method is followed then, cost of goods sold is only considered, even the fixed cost component is considered and proportionately divided between goods sold and finished goods inventory whereas, in variable costing this is not done.

Therefore, when there is finished goods inventory lying then absorption costing will show more profit then variable costing method.

Thus, Statement B is correct