[misoc23]

A single-product company prepares income statements using both absorption and variable costing methods. Manufacturing overhead cost applied per unit produced in the current year was the same as in the previous year. The variable costing statement reported a profit whereas the absorption costing statement reported a loss. The difference in reported income could be explained by units produced being:

A.
less than units sold.

B.
less than the activity level used for allocating overhead to the product.

C.
in excess of the activity level used for allocating overhead to the product.

D. in excess of units sold.

Answer is A

[DZagt]

With AC the higher your inventory the lower you COGS. Since they sold more than they produced, the COGS will be very high…thats my guess. I hate BEC.

[misoc23]

ah ok makes sense. I understand the concept of the two but for some reason this was throwing me off!

this is my last section too! when is your test?

[bryceallant]

Under AC, overhead is expensed when the unit is sold. Variable is during the period it is produced. If more units are sold than produced, expense is higher under AC, resulting in lower income.

[Author]

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