ECONOMICS

Detailed explanation-1: -Explanation: If production exceeds sales, the profit under absorption costing is higher as compared to variable costing. This is due to the deferral of fixed manufacturing overhead costs to the next period in ending inventory, leading to reduced cost of goods sold for the current period and hence a higher profit.

Detailed explanation-2: -Under the variable costing method, only the variable cost to produce is considered as a product cost. All other costs incurred will be treated as period costs. A product cost is capitalized as an inventory cost while a period cost is expensed outright.

Detailed explanation-3: -Absorption costing, sometimes called “full costing, ” is a managerial accounting method for capturing all costs associated with manufacturing a particular product. All direct and indirect costs, such as direct materials, direct labor, rent, and insurance, are accounted for when using this method.

Detailed explanation-4: -In an absorption costing income statement, the manufacturing margin is the excess of sales over the variable cost of goods sold. Assuming no other changes, operating income will be the same under both the variable and absorption costing methods when the number of units manufactured equals the number of units sold.