The difference in operating income between variable costing and absorption costing is in the treatment of fixed manufacturing costs.
The difference in operating income between variable costing and absorption costing is in the treatment of fixed manufacturing costs.
This is an example of a question where the answer that would be exactly correct is not given. However, the best answer from among the answer choices given is "ending inventory in units and the beginning inventory in units, multiplied by the budgeted fixed manufacturing cost per unit." That is the best answer because it is the only answer choice that references fixed manufacturing cost. The difference between absorption costing and variable costing is in the treatment of fixed manufacturing costs. This answer is not exactly correct because it does not take into consideration the accounting treatment of the variances between the actual fixed overhead cost and the budgeted fixed overhead cost in absorption costing. Nor does it take into consideration the fact that the company might be using the FIFO inventory cost flow assumption. If it is using FIFO, the fixed cost in the beginning inventory that is sold first is the cost of the previous year when the beginning inventory was manufactured, which is probably a different cost from the current year’s cost.
The difference in operating income between variable costing and absorption costing is in the treatment of fixed manufacturing costs.
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