How do variable costing and absorption costing differ? When is net operating income different under the two methods?


Variable costing and absorption costing treat fixed overhead costs differently. Under variable costing, fixed overhead costs are treated as period costs, whereas under absorption costing, fixed overhead costs are treated as product costs.

Net operating income will differ under the two methods when the number of units produced and sold is different. When sales exceed production, variable costing will report higher net operating income than absorption costing. When production exceeds sales, absorption costing will report higher net operating income than variable costing.

Business

You might also like to view...

Price-sensitive consumers regularly respond to consumer promotions, such as coupons, price-off deals, and premiums

Indicate whether the statement is true or false

Business

Answer the following statements true (T) or false (F)

1. In the cash receipts journal, the Other Accounts CR column is used when a transaction involves a credit entry that is not listed in the headings (columns) of the cash receipts journal. 2. Unlike the sales journal, entries in the cash receipts journal are posted monthly to the accounts receivable subsidiary ledger and daily to the general ledger. 3. Cash purchases are recorded in the purchases journal. 4. The purchases journal is a special journal used to record all purchases of merchandise inventory, office supplies, and other assets on account.

Business

Retail stores such as Macy's that offer a wide variety of products for customers use ______ departmentalization.

a. product b. functional c. customer d. divisional

Business

Quantitative objectives make the control and evaluation process more objective and measure deviations from desired performance more precisely.

Answer the following statement true (T) or false (F)

Business