When the number of units produced is less than the number of

When the number of units produced is less than the number of units sold, how does operating income under variable costing differ from operating income under absorption costing? O A. It is the same as operating income under absorption costing. O B. It is higher than operating income under absorption costing. O C. It depends upon the amount of decline. O D. It is lower than operating income under absorption costing.

Solution

_{B - it is higher than operating income under absorption costing}

_{Fixed costs are included in the closing stock portion and hence the amount of unit costs is high}

_{Finished goods and inventories are overstated in absorption costing as it includes one more cost element in inventory value than under variable costing that is fixed manufacturing costs}