Question

If units produced are greater than units sold: Multiple Choice

1. absorption costing net operating income is greater than variable costing net operating income.
2. absorption costing net operating income is less than variable costing net operating income.
3. absorption costing net operating income is equal to variable costing net operating income.
4. net operating income will show a profit under both absorption costing and variable costing.

Answer 1

The correct answer is option 1

Step-by-step explanation:

If units produced are greater than units sold absorption costing net operating income is greater than variable costing net operating income.:

Answer 2

The correct option is 1

Step-by-step explanation:

In Absorption costing, all production costs: direct labor, direct materials, and factory overhead whether fixed or variable are considered products costs.

In variable costing, only direct materials, direct labor and variable factory overhead are considered product costs.

So if units are produced are greater than units sold Absorption cost will be greater than Variable cost and vice versa.