MGM222H5 Chapter Notes - Chapter 8: Total Absorption Costing, Earnings Before Interest And Taxes, Lean Manufacturing
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2 reasons: the only difference that can exist between ac and vc income is amount of fixed overhead expensed, when production > sales, operating income"s greater under ac because fmoh costs is deferred in inventory and excluded from. Cogs whereas in vc all fmoh costs are immediately expensed: production < sales, operating income under ac is lower because. Why is operating income not influenced by changes in inventories when. Vc is used: vc releases variable costs from inventory to cogs in amounts based on volume of sales so production doesn"t influence cogs because fmoh is fixed and not released as with absorption costing. Over extended period = cumulative operating incomes will be similar because sales can"t exceed production and vice versa. Operating income not affected by changes in production under vc. Oi is affected by production changes in ac even if sales level doesn"t change. Ac opponents argue shifting fmoh between periods is confusing and leads to misinterpretations.
