In Income Statements Prepared Under Absorption Costing and Variable Costing

Multiple Choice

In income statements prepared under absorption costing and variable costing, where would you find the terms contribution margin and gross profit?

A) The difference is expensed as a period cost the way variable costing immediately expenses fixed overhead as a period cost.
B) The difference is over or under-applied overhead that if immaterial, will be closed out to cost of goods sold at year end.
C) The difference will be held in inventory and taken to cost of goods sold when the units are sold next year.
D) There is no difference.