Asked by Adecel Rusty on Jun 08, 2024
Verified
Generally speaking, net operating income under variable and absorption costing will:
A) always be equal.
B) never be equal.
C) be equal only when production and sales are equal.
D) be equal only when production exceeds sales.
Net Operating Income
The profit generated from a company's regular business operations, excluding expenses from interest and taxes.
Variable Costing
A costing method that includes only variable costs—direct materials, direct labor, and variable manufacturing overhead—in unit product costs.
- Comprehend the impact of production and sales levels on net operating income under both costing methods.
Verified Answer
CH
Christopher HawkinsJun 09, 2024
Final Answer :
C
Explanation :
Net operating income under variable and absorption costing will be equal only when production equals sales because under absorption costing, fixed manufacturing overhead is allocated to units produced, affecting the cost of goods sold and inventory levels. When production equals sales, there are no changes in inventory levels, so the treatment of fixed manufacturing overhead does not create a difference in net operating income between the two costing methods.
Learning Objectives
- Comprehend the impact of production and sales levels on net operating income under both costing methods.
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