Question

The difference in operating income under absorption costing and variable costing is $ 33,000 . The 2017 operating income under absorption costing is greater than the operating income under variable costing because _________ As a result, under absorption costing, a portion of the fixed overhead remained in inventory and led to a lower cost of goods sold than under the other method.

Answer 1

an increase in inventory units.

Step-by-step explanation:

Absorption costing values units of inventory and production using full cost per unit. Full cost per unit includes variable cost and a portion of fixed production overheads. The fixed production overhead are charged to cost units using predetermined overhead absorption rate.

Whenever there is an increase in inventory in the course of the accounting period , a portion of overhead which has been charged to the closing inventory units would be carried forward to the following accounting period. The impact of this is that the cost of goods sold under absorption costing would be lower than that of variable costing unit, therefore making the profit under the former method to be greater