When sales exceed production and the company uses the LIFO inventory flow assumption, the net operating income reported under variable costing generally will be: Multiple Choice greater than net operating income reported under absorption costing. equal to net operating income reported under absorption costing. higher or lower because no generalization can be made. less than net operating income reported under absorption costing.

Question

Business

Miracle Friedman

13 June, 00:50

When sales exceed production and the company uses the LIFO inventory flow assumption, the net operating income reported under variable costing generally will be: Multiple Choice greater than net operating income reported under absorption costing. equal to net operating income reported under absorption costing. higher or lower because no generalization can be made. less than net operating income reported under absorption costing.

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Kathleen · Answer 1

less than net operating income reported under absorption costing

Explanation:

When sales exceed production, inventories shrink. if inventories decrease, then some the fixed manufacturing overhead costs that had been deferred in inventory in previous period will be released to the income statement as part of cost of goods sold as well as all of the current fixed manufacturing overhead costs.

Since only the current fixed manufacturing overhead costs are expensed under variable costing, the net operating income reported under absorption costing will be less than the net operating income reported under variable cost