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What is the net operating income under absorption costing?
Net operating income is Gross Profit – Total Operating Expenses and is also called Income before taxes. Let's look at an example: Bradley Company had the following information for May: Direct materials $13,000.
Is operating income higher under variable or absorption costing?
When units produced are greater than units sold, i.e., units in inventory increase, absorption income is greater than variable costing income because absorption costing defers a portion of fixed manufacturing costs in finished goods inventory.
Why operating income will differ between variable and absorption costing?
Absorption costing differs from variable costing because it allocates fixed overhead costs to each unit of a product produced in the period. Absorption costing allocates fixed overhead costs to a product whether or not it was sold in the period.
Under what circumstances will net income under absorption and variable costing be the same?
Answer and Explanation: In variable costing, all the fixed costs are recorded as period costs and in absorption costing, fixed manufacturing costs are part of the manufacturing costs. If production is equal to sales units, the net income of the two methods are the same.