Question

What factor related to manufacturing costs causes the difference between operating income computed using absorption costing and operating income computed using variable​ costing?

Answer 1

Absorption costing treats fixed manufacturing overhead as a product cost, whereas variable costing treats fixed manufacturing overhead as period costs. This means that under absorption costing, cost of goods sold and inventories include all fixed manufacturing overhead costs. While under variable costing, cos of goods sold and inventories do not include fixed manufacturing overhead costs (which lowers their costs).