7-7 If production exceeds sales, absorption
inventory. The fixed manufacturing overhead
costing will usually show higher net operating
cost attached to the units in ending inventory
income than variable costing. When production
follow the units into the next period as part of
exceeds sales, inventories increase and there-
their inventory cost. When the units carried over
fore under absorption costing part of the fixed
as inventory are finally sold, the fixed manufac-
manufacturing overhead cost of the current pe-
turing overhead cost that has been carried over
riod will be deferred in inventory to the next pe-
with the units is included as part of that period’s
riod. In contrast, all of the fixed manufacturing
cost of goods sold.
overhead cost of the current period will be
charged immediately against income as a period
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