If the number of units produced exceeds the number of units sold, then net operating income...

If the number of units produced exceeds the number of units sold, then net operating income under absorption costing will:

be equal to the net operating income under variable costing less total fixed manufacturing costs.

be greater than net operating income under variable costing.

be equal to the net operating income under variable costing.

be equal to the net operating income under variable costing plus total fixed manufacturing costs.

.

A company produces a single product. Last year, fixed manufacturing overhead was $30,000, variable production costs were $48,000, fixed selling and administration costs were $20,000, and variable selling administrative expenses were $9,600. There was no beginning inventory. During the year, 3,000 units were produced and 2,400 units were sold at a price of $40 per unit. Under variable costing, net operating income would be:

Expert Solution

If the number of units produced exceeds the number of units sold, the net operating income under absorption costing will: be greater than net operating income under variable costing. Because the overheads under absorption costing form part of the valuation of stock since overheads are absorbed. This closing stock has an effect of increasing the gross profit by reducing the cost of goods sold. Thus, net operating income is higher.

ekkarill92 answered 1 year ago

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