How do differences in sales and production level affect net income computed under absorption costing and variable costing?
If production equals sales, absorption costing net income equals variable costing net income.
If production exceeds sales, absorption costing net income exceeds variable costing net income, because some fixed manufacturing overhead is deferred as inventory cost on the balance sheet.
If production is less than sales, absorption costing net income is less than variable costing net income, because some fixed manufacturing overhead that had been deferred as inventory cost is now expensed.
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