Knowledge Check 01

The difference between absorption costing net operating income and variable costing net operating income can be explained by the way these two methods account for ________.

• all overhead costs

• fixed overhead costs

• selling and administrative expenses

• variable overhead costs

Knowledge Check 02

Absorption costing income statements ignore ________.

• direct materials and direct labor costs

• direct and indirect cost distinctions

• product and period cost distinctions

• variable and fixed cost distinctions

Knowledge Check 03

When the number of units produced is greater than the number of units sold, variable costing net operating income will be ________.

• the same as absorption costing net operating income

• greater than absorption costing net operating income

• less than absorption costing net operating income