Asked by Berto Familia on May 03, 2024
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For a period during which the quantity of product manufactured equals the quantity sold, operating income reported under absorption costing will be smaller than the operating income reported under variable costing.
Absorption Costing
An accounting method that includes all manufacturing costs (fixed and variable) in the cost of a product.
Operating Income
Income generated from regular business operations, excluding deductions of interest and taxes.
Variable Costing
A costing method that includes only variable production costs (materials, labor, and overhead) in product costs, treating fixed costs as period costs.
- Gain insight into the distinction between absorption costing and variable costing, and how each one influences operating income.
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Learning Objectives
- Gain insight into the distinction between absorption costing and variable costing, and how each one influences operating income.
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