Absorption Costing net income exceeds variable costing net income when units produced are greater than units sold.

Question

True

False

Answer 1

True.

Under absorption costing, fixed manufacturing overhead is included in the cost of inventory and only expensed when the inventory is sold. If units produced exceed units sold, some of the fixed manufacturing overhead costs remain in inventory, leading to a higher net income under absorption costing compared to variable costing, where all fixed manufacturing costs are expensed in the period incurred.