Can someone break this down for me.
Lynn Manufacturing Co. prepares income statements using both standard absorption and standard variable costing methods. For year 2, unit standard costs were unchanged from year 1. In year 2, the only beginning and ending inventories were finished goods of 5,000 units. How would Lynn’s ratios using absorption costing compare with those using variable costing?
A. Same current ratio, same return on stockholders' equity.
B. Greater current ratio, smaller return on stockholders' equity. – Correct Answer
C. Same current ratio, smaller return on stockholders' equity.
D. Greater current ratio, same return on stockholders' equity.
If return on equity = Net Income / Stockholders' Equity, and net income is the same for both variable and absorption costing in this instance, how is the ROE smaller? Am I missing something?