Multiple Choice QuestionDifferences in income between variable costing and absorption costing is due toMultiple choice question.salesreportingtimingexpenses
Question
Multiple Choice Question
Differences in income between variable costing and absorption costing is due to:
- sales
- reporting
- timing
- expenses
Solution
The difference in income between variable costing and absorption costing is due to timing.
Here's why:
-
Variable Costing: This method only includes the variable manufacturing costs in the product cost. Fixed manufacturing overhead costs are treated as period costs and are expensed in the period they occur.
-
Absorption Costing: This method treats all manufacturing costs (both variable and fixed) as product costs. They become part of the inventory and do not become expenses until the inventory is sold.
The timing of when the fixed manufacturing overhead costs are recognized as expenses is what causes the difference in income between the two costing methods. In variable costing, these costs are recognized immediately, but in absorption costing, they are deferred until the product is sold.
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