LO 6.5When the number of units in ending inventory increases through the year, which of the following is true?

Net income is the same for variable and absorption costing.

Net income is higher for variable costing than for absorption costing.

Net income is higher for absorption costing than for variable costing.

There is no relationship between net income and the costing method.

Question

Jayce Randolph

Business

5 September, 12:45

LO 6.5When the number of units in ending inventory increases through the year, which of the following is true?

Net income is the same for variable and absorption costing.

Net income is higher for variable costing than for absorption costing.

Net income is higher for absorption costing than for variable costing.

There is no relationship between net income and the costing method.

+2

Answers (1)

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Merritt · Answer 1

When the number of units in ending inventory increases through the year, Net income is higher for absorption costing than for variable costing.

Explanation:

Variable costing and absorption costing are methods of applying cost of production to either products or services. Variable costing will only include variable costs directly earned in production. Absorption costing would include both variable costs and fixed costs related to production. Variable costing is also called marginal costing or direct costing and absorption costing is also known as full costing.

The net income under "variable costing systems" becomes higher when the inventory decreases. And when inventory increases, net income for "absorption costing" becomes higher.