alleryStart learning →When the entire finished goods inventory is sold, net income under the two methods is:
AZero under absorption
BThe same under both
CHigher under variable
DLower under variable
Answer & Solution
Correct answer: B. The same under both
1. The two methods differ only in timing, not in total.
2. When the entire inventory is sold, the total fixed cost is expensed either way.
3. It goes to cost of goods sold under absorption or to administrative cost under variable.
4. Net income is the same under both methods.
_Source: OpenStax Principles of Accounting Volume 2, Managerial Accounting (CC BY-NC-SA 4.0), Ch 6 'Activity-Based, Variable, and Absorption Costing', sections 6.1-6.5_
Keep practising Activity-Based Costing
Browse all Activity-Based Costing questions for US CMA Part 1, or explore more Management Accounting topics.
Related questions
Work the per-unit numbersAbsorption or variableTraditional versus ABCSort costs by their levelOrder the five ABC stagesMoving to activity-based costing tends to change the per-unit cost of low-volume products One stated disadvantage of activity-based costing is that the method is:Fixed overhead is $12,000 and 10,000 units are made. Under absorption costing each unit ca