Managerial Accounting (15th Edition)

Published by McGraw-Hill Education
ISBN 10: 007802563X
ISBN 13: 978-0-07802-563-1

Chapter 6 - Variable Costing and Segment Reporting: Tools for Management - Questions - Page 259: 6-7

Answer

Absorption costing will show a higher value of the net operating incomes. In this case, the fixed manufacturing overhead of the period will be referred to in the inventory as being under absorption cost.

Work Step by Step

If the units produced would equal the units sold, both methods would show the same net operating income value. In this case, when the units produced > units sold, the net operating income will show a higher value than the under variable costing.
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