For a period during which the quantity of product manufactured equals the quantity sold, income from operations reported under absorption costing will be smaller than the income from operations reported under variable costing.

Question

Xander Vance

Business

17 November, 03:38

For a period during which the quantity of product manufactured equals the quantity sold, income from operations reported under absorption costing will be smaller than the income from operations reported under variable costing.

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Amaris Hodge · Answer 1

the statement is false.

when the quantity produced equals quantity sold, then the operating income from both methods of costing must be the same.

this is because the main difference between these two techniques how they treat the inventory.

under variable costing, only direct labour, direct material and variouble overheads are treated as production costs while all the other overheads are changed immediately against the income statement.

while in absorption costing direct labour, direct material and overheads, disregarding whether fixed or variable are considered as production costs and are absorbed in to the unit cost.