Question

In its first year of​ business, Talula, Inc. produced and sold 600 units. If Talula uses variable​ costing, ________. A. its value of ending Finished Goods Inventory reported in the balance sheet will be higher than under absorption costing B. its operating income for the period will be lower than under absorption costing C. its operating income will be the same as under absorption costing D. its operating income for the period will be higher than under absorption costing

Answer 1

C. its operating income will be the same under absorption costing.

Step-by-step explanation:

VARIABLE COSTING is a managerial accounting cost concept. Under this method, manufacturing overhead is incurred in the period that a product is produced. This addresses the issue of absorption costing that allows income to rise as production rises. Under an absorption cost method, management can push forward costs to the next period when products are sold.

Variable costing is a costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in unit product costs.