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When units produced are less than units sold,income under absorption costing is higher than income under variable costing.
Absorption Costing
A bookkeeping strategy that encompasses all production expenses, including direct materials, direct labor, and variable plus fixed overhead, into the pricing of a product.
Variable Costing
An accounting method that only includes variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product costs and treats fixed overhead expenses as period costs.
- Gain insight into the effect that changes in the levels of production and sales have on financial results as reported by different costing methods.
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Learning Objectives
- Gain insight into the effect that changes in the levels of production and sales have on financial results as reported by different costing methods.
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