ECONOMICS

Detailed explanation-1: -Net profit will be higher under Absorption Costing when ending inventory more than beginning inventory. The value of beginning inventory under Marginal Costing is higher than Absorption Costing. When inventory levels are increase, profit under absorption costing is higher than marginal costing.

Detailed explanation-2: -If sales are more than production, then net income under variable costing will exceed net income under absorption costing.

Detailed explanation-3: -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-4: -Since variable costing treats fixed manufacturing overhead costs as period costs, all fixed manufacturing overhead costs are expensed on the income statement when incurred. Thus if the quantity of units produced exceeds the quantity of units sold, absorption costing will result in higher profit.