Question

In comparing the absorption and variable cost methods, each of the following statements is true except:________.

1. SG&A fixed expenses are not included in inventory in either method.
2. Only the absorption method may be used for external financial reporting.
3. Variable costing charges fixed overhead costs to the period they are incurred.
4. When inventory increases over the period, variable net income will exceed absorption net income.

Answer 1

Answer: When inventory increases over the period, variable net income will exceed absorption net income.

Step-by-step explanation:

In comparing the absorption and variable cost methods, the statements that are true are:

• SG&A fixed expenses are not included in inventory in either method.

• Only the absorption method may be used for external financial reporting.

• Variable costing charges fixed overhead costs to the period they are incurred.

Therefore, option D is wrong which states that "when inventory increases over the period, variable net income will exceed absorption net income".