Choice "C" is correct. Neither I nor II are correct. When production exceeds sales, inventory increases. As inventory increases, net income under absorption costing benefits from fixed manufacturing overhead that is recorded in inventory instead of recognition in cost of goods sold. Variable costing, however, bears the full cost of all fixed costs. Variable costing is less than absorption costing when inventory increased. Conversely, when sales exceeds production, inventory fall. As inventory falls, net income under absorption costing is reduced by cost of goods sold that includes fixed manufacturing overhead from prior periods that had been recorded in inventory. Absorption costing net income is less than variable costing net income.Choice "d" is incorrect. I only is not correct. When production exceeds sales, inventory increases. As inventory increases, net income under absorption costing benefits from fixed manufacturing overhead that is recorded in inventory instead of recognition in cost of goods sold. Variable costing, however, bears the full cost of all fixed costs. Variable costing is less than absorption costing when inventory.Choice "b" is incorrect. II only is not correct. When sales exceeds production, inventory fall. As inventory falls, net income under absorption costing is reduced by cost of goods sold that includes fixed manufacturing overhead from prior periods that had been recorded in inventory. Absorption costing net income is less than variable costing net income.Choice "a" is incorrect. "Both I and II" is not correct. See the explanations above.