Asked by Sarah-Cate Parker on Jun 06, 2024
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When reconciling variable costing and absorption costing net operating income, fixed manufacturing overhead costs deferred in inventory under absorption costing should be deducted from variable costing net operating income to arrive at the absorption costing net operating income.
Variable Costing
An accounting method that includes only variable production costs—direct materials, direct labor, and variable manufacturing overhead—in product costs.
Fixed Manufacturing Overhead
The set costs associated with producing goods that do not change with the level of output, including salaries, rent, and insurance.
Net Operating Income
A financial metric that shows the profitability of a company's core business activities, excluding the effects of financing and investment income.
- Acquire knowledge on how production and sales volumes affect net operating income under diverse costing methods.
- Acquire knowledge on the treatment of fixed manufacturing overhead costs in variable and absorption costing.
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Learning Objectives
- Acquire knowledge on how production and sales volumes affect net operating income under diverse costing methods.
- Acquire knowledge on the treatment of fixed manufacturing overhead costs in variable and absorption costing.
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