The Difference in Net Income Between Absorption and Variable Costing

question 63

Essay

The difference in net income between absorption and variable costing can be explained by the change in finished-goods inventory (in units) multiplied by the standard fixed manufacturing overhead rate.
Required:
Explain why this calculation accounts for the difference noted.

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Definitions:

Observed Values

The actual values that are measured or collected during an experiment or survey.

Predicted Values

In statistics, these are the estimated outcomes based on a regression model or other predictive model.

Coefficient of Determination

A statistical measure represented by R² that assesses the extent of variance in a dependent variable that is predictable from the independent variable(s).

Regression Model

A statistical framework that predicts the connection between a dependent variable and one or several independent variables.