ECONOMICS

Detailed explanation-1: -Variable costing and absorption costing income statements may differ because of their treatment of fixed factory overhead. Inventory costs under variable costing include only direct materials, direct labor, and variable factory overhead.

Detailed explanation-2: -Absorption costing assigns per unit fixed manufacturing overhead costs to production. This can potentially produce positive net operating income even when the number of units sold is less than the breakeven point. Variable costing income is only affected by changes in unit sales.

Detailed explanation-3: -Key Takeaways. 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.

Detailed explanation-4: -(The difference between variable and absorption costing is the treatment of fixed manufacturing overhead. All fixed manufacturing overhead is expensed during the period using variable resulting in lower operating income.

Detailed explanation-5: -The difference is that the absorption cost method includes fixed overhead as part of the cost of goods sold, while the variable cost method includes it as an administrative cost, as shown in Figure 6.12.