1. When the number of units produced is less than the number of units sold, how does operating income under direct costing differ from operating income under absorption costing? A. It is lower than operating income under absorption costing. B. It is the same as operating income under absorption costing. C. It is higher than operating income under absorption costing. D. It depends upon the amount of decline. 2. A basic principle of direct costing is that fixed manufacturing overhead costs be currently expensed. What is the rationale behind this? A. Fixed manufacturing overhead costs occur regardless of level of production. B. Fixed manufacturing overhead costs are generally immaterial in amount. C. Allocation of fixed manufacturing costs are arbitrary at best. D. Fixed manufacturing costs change as production changes. 3. Absorption costing differs from direct costing in all of the following EXCEPT a. treatment of fixed manufacturing overhead. b. treatment of variable production costs. c. acceptability for external reporting. d. arrangement of the income statement