Under the LIFO inventory flow assumption, if the number of units in inventories increase between the beginning and end of the period, absorption costing net operating income will generally be greater than variable costing net operating income.

LIFO Inventory

A method of inventory valuation that assumes the last items placed in inventory are the first sold (Last In, First Out).

Absorption Costing

A costing method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overhead - in the cost of a product.

Variable Costing

An accounting method in which variable manufacturing costs are included in product costs, while fixed manufacturing overhead is treated as an expense of the current period.