A. When inventory levels increase, absorption costing will give a higher net income because some of the fixed factory overheads are in inventory on the balance sheet and were not expensed this period on the income statement.
B. Variable costs are the same under both methods.
C. Fixed factory overhead costs are not treated the same way under both methods.
D. Because of the different treatment of fixed factory overheads, the sales minus the product cost results in the g
margin for absorption costing and sales minus product costs (variable manufacturing costs) results in manufacture
contribution margin under variable costing. These two results will be different under these two methods.
