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<p><em><strong>I. When production exceeds sales, variable costing income exceeds absorption costing net income.</strong></em></p> <p><em><strong>II. When sales exceed production, absorption costing income exceeds variable costing net income.</strong></em></p> <p><em><strong>a. I only.</strong></em></p> <p><em><strong>b. II only.</strong></em></p> <p><em><strong>c. Both I and II.</strong></em></p> <p><em><strong>d. Neither I nor II.</strong></em></p>
D. In absorption costing, the fixed manufacturing overhead cost becomes part of product cost. Hence, when production is greater than sales, some of the fixed overhead cost is retained in inventory. Therefore, the net income is higher. Whereas, in variable costing, fixed manufacturing overhead cost is classified as period cost, therefore the entire amount is expensed in the period it is incurred.
d. Neither I nor II. because of the ending inventory value
