Profit Equality in Costing Methods

Steps:

• Absorption costing allocates fixed manufacturing overheads to units produced, including them in inventory values.
• Marginal costing expenses all fixed overheads in the period incurred, excluding them from inventory.
• Profit differs between methods when inventory levels change, as absorption defers or releases fixed overheads via inventory.
• Equal profits occur only if production equals sales, leaving inventory unchanged and fixed overhead treatment identical.

Why B is correct:

• When units produced equal units sold, no inventory change occurs, so fixed overheads are fully expensed in both methods per the inventory valuation principle.

Why the others are wrong:

• A: Stopped production means zero units produced; if sales occurred, produced < sold, creating profit variance from inventory release.
• C: Produced > sold builds inventory, deferring fixed overheads in absorption costing and increasing its profit relative to marginal.
• D: Produced < sold reduces inventory, releasing fixed overheads in absorption costing and decreasing its profit relative to marginal.

Final answer: B