True or False QuestionTrue or false: When units produced are less than units sold, net income under absorption costing will be less than net income computed under variable costing.True false question.TrueFalse
Question
True or False QuestionTrue or false: When units produced are less than units sold, net income under absorption costing will be less than net income computed under variable costing.True false question.TrueFalse
Solution
The statement is True. When units produced are less than units sold, the net income under absorption costing will be less than the net income computed under variable costing. This is because under absorption costing, fixed manufacturing overhead is treated as a product cost and hence, part of its cost remains in ending inventory when units produced are less than units sold. This results in higher cost of goods sold and lower net income as compared to variable costing where fixed manufacturing overhead is treated as a period cost.
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