Answer (A) is correct . Absorption costing results in a higher income figure than variable costing whenever production exceeds sales because absorption costing capitalizes some fixed factory overhead as part of inventory. These costs are expensed during the period incurred under variable costing. Consequently, variable costing recognizes greater expenses and lower income when production exceeds sales. The reverse is true when sales exceed production. In that case, the absorption method results in a lower income because some fixed costs of previous periods absorbed by the beginning inventory are expensed in the current period as cost of goods sold. Variable costing income is never burdened with fixed costs of previous periods.
Answer (B) is incorrect because An increase in inventory results in a higher income under absorption costing.
Answer (C) is incorrect because The important relationship is between actual production and actual sales, not between actual and planned production.
Answer (D) is incorrect because Planned sales do not determine actual income.
|
Valyn Corporation’s absorption costing operating income was