I think the reason why a lot of people have trouble is because they try to memorize it while not really understanding the concept. All it takes is a little bit of time before things slip out of memory or you have one too many mnemonics floating around in your head and get confused.
Sales-COGS- this and that=Net Income.
We all know that absorption, like a sponge, sucks everything up. GAAP wants big picture, not concerned about manager bonus. So assigned costs per unit is greater in absorption vs variable. So every unit sold will have a greater COGS under absorption as compared to variable.
What happens when Sales exceed Production? You start to use up your Beginning Inventory.
What is in Beginning Inventory? Same stuff. Each unit sold per absorption will have fixed and variable costs attached to it. Each unit sold per variable only has variable costs attached.
Therefore COGS is greater under absorption leading to a reduced Net Income.
The only difference between the two is the value of Inventory in the Balance sheet. That is why is Sales = Production, absorption and direct equal each other. The historical costs in inventory remain constant.
In the end, it doesn't matter. Absorption or Direct. The Costs were the exact same between the 2. The differences in Net Income has to go somewhere and that somewhere is Inventory.
TL,dr.
Sales>Production->inventory decreases in balance sheet. Inventory worth more under direct so COGS increases, decreases Net Income.
Sales<Production. Absorption. Again, sucks up everything. It is worth more. You got more stuff hanging out in inventory instead of being incurred as COGS that decreases inventory.
This is key. Period Expense. Fixed Costs is a period expense. Direct Costing treats it under the line, expensed not per unit but as -$1,000,000 FC. The whole thing is expense. So NI will be less in variable than in direct. Again, absorption has some of these costs locked up in the balance sheet improving their current ratio.
.