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When the number of units in ending inventory increases through the year, which of the following is true?
A. Net income is the same for variable and absorption costing.
B. Net income is higher for variable costing than for absorption costing.
C. Net income is higher for absorption costing than for variable costing.
D. There is no relationship between net Income and the costing method.
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Principles of Accounting Volume 2
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- Under variable costing a. Net income will tend to vary inversely with production changesb. Net income will always be higher than under absorption costingc. Inventory costs will always be lower than under absorption costingd. Net income will tend to move upward and downward in response to changes in levels of productionarrow_forwardWhen the number of units sold exceed the number of units produced, income reported under absorption costing will be lower than variable costing. Which of the following gives the best justification of the above statement? a. Income under absorption costing is always more than income reported using variable costing, regardless of the number of units produced. b. The fixed overhead cost deferred in ending inventory is less than the fixed overhead cost recognized from beginning inventory. c. The fixed overhead cost deferred in ending inventory is greater than the fixed overhead cost recognized from beginning inventory. d. Income under absorption costing is always less than income reported using variable costing, regardless of the number of units produced. e. Fixed overhead is treated as a period cost under absorption costing.arrow_forwardIn comparing the absorption and variable cost methods, each of the following statements is true except: a. SG&A fixed expenses are not included in inventory in either method. b. Only the absorption method may be used for external financial reporting. c. Variable costing charges fixed overhead costs to the period they are incurred. d. When inventory increases over the period, variable net income will exceed absorption net income.arrow_forward
- When production exceeds sales,a. Ending inventory under variable costing will exceed ending inventory under absorption costingb. Ending inventory under absorption costing will exceed ending inventory under variable costing.c. Ending inventory under absorption costing will be equal to ending inventory under variable costing.d. Ending inventory under absorption costing either exceeds, be equal to, or be less 20 than ending inventory under variable costing.arrow_forwardWhich formula reconciles the difference between absorption and variable-costing income? a. Change in inventory units x predetermined variable-overhead rate per unit. b. Change in inventory units / predetermined variable-overhead rate per unit. c. Change in inventory units x predetermined fixed-overhead rate per unit d. Change in inventory units / predetermined fixed-overhead rate per unit. e. Change in net income x fixed-overhead rate per unitarrow_forwardWhich condition would cause absorption-costing net income to be lower than variable-costing net income? a. Units sold exceeded units produced b. Units sold equaled units produced c. Units sold were less than units produced d. Sales price decreased e. Selling expenses increasedarrow_forward
- Which of the following statements about profit measurement under absorption and marginal costing is not true (assuming that unit variable costs and fixed costs are constant)? O A. If inventory levels increase then profits measured using absorption costing will be higher than profits measured using marginal costing. O B. If inventory levels decrease then profits measured using marginal costing will be higher than profits measured using absorption costing. OC. Profits measured using absorption costing will be either lower or higher than profits measured using marginal costing. O D. Profits measured using absorption costing may be the same as, or lower than, or higher than profits measured using marginal costing.arrow_forwardIdentify if true or false 1. If the ending inventories happened to be zero, the net profit reported under absorption costing will be greater than reported under variable costing 2. The primary reason of variances in net operating income under variable costing and absorption costing is the change in fixed cost 3. When inventory increases, the net operating income under absorption costing decreases 4. When inventory decreases, the net operating income under absorption costing is ALWAYS lower than of variable costing. 5.When inventory decreases the fixed manufacturing overhead is deferred in inventory. 6. The change in production does not affect net operating income under variable costing system. *arrow_forwardBaxter Corporation has been using FIFO during a period ofrising costs. Explain whether you would expect each of the following measurements to be higher or lower if the com-pany had been using LIFO. a. Net income.b. Inventory turnover rate.c. Income taxes expense.arrow_forward
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College