A higher inventoriable unit cost would be reported to shareholders than to management, because fixed manufacturing costs are inventoriable costs under absorption costing but are period costs under variable costing.
Fixed selling and administrative costs are treated the same way under variable and absorption costing: as period costs.
The contribution margin would be in the reports released to management. The reports released to shareholders would show a gross profit margin instead of a contribution margin.
Internal income statements using variable costing -- at least the contribution margin -- would vary closely with sales, because only variable costs are considered product costs when variable costing is used. Fixed factory overhead is expensed as it is incurred. External income figures using absorption costing would vary with the relationship between units produced and units sold. When production is greater than sales, net income under absorption costing is higher than it is under variable costing because the fixed factory overheads are inventoried under this method. Fixed factory overhead attached to units produced but not sold remains in inventory and thus the fixed costs attached to those units is not expensed until the units are sold. When sales are greater than production, net income under variable costing is higher than it is under absorption costing. Under absorption costing, the fixed factory overhead attached to the units sold is expensed (along with other product costs) as cost of goods sold. Because beginning inventory is sold when sales are greater than production, fixed factory overhead costs from the previous year are expensed in the current year under absorption costing whereas under variable costing, they would have been expensed during the previous year when they were incurred. As a result, net income will be higher under variable costing.
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