If the inventory level decreases then operating income, under variable costing, will be reported ___________?
Correct answer: A. more
- A. more
- B. less
- C. zero
- D. none of above
Explanation
When inventory decreases, absorption costing releases fixed manufacturing overhead from inventory, reducing its income relative to variable costing. Variable costing had already expensed that fixed overhead, so its reported operating income is higher.
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About Cost Accounting
Cost accounting measures and analyses the cost of producing goods or providing services for planning, control and pricing decisions. It covers direct and indirect costs, fixed and variable costs, job and process costing, break-even analysis, marginal costing, overhead allocation, and the difference between product cost and period cost.
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