B. If finished goods inventory increases, absorption costing results in higher income.

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C. Variable manufacturing costs are lower under variable costing.

D. Gross margins are the same under both costing methods.


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B. If finished goods inventory increases, absorption costing results in higher income. The reason is that some of the fixed production overhead incurred during the period will be carried forward in cost finished goods inventory ( which reduces cost of sales) to be set against sales revenue in the following period instead of being written off in full against profit in the period.

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