In two of the methods of costing, the operating income will be different if the __________?
Correct answer: B. inventory changes
- A. fixed cost does not change
- B. inventory changes
- C. inventory does not change
- D. fixed cost changes
Explanation
Under absorption and variable costing, operating income differs when inventory changes because absorption costing carries some fixed manufacturing overhead in inventory. If inventory remains unchanged, the fixed overhead released is the same under both methods.
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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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