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The income statement prepared using absorption costing and marginal costing are two distinct approaches to allocate and report costs and, as such, can yield different results depending on the specific circumstances and conditions in which they are applied. To understand the conditions under which these two methods produce different results, we must first clarify the key differences between absorption costing and marginal costing.

Absorption Costing:

Absorption costing is a traditional method of cost accounting that allocates both variable and fixed manufacturing costs to products. Under absorption costing, all manufacturing costs, including direct materials, direct labor, variable overhead, and fixed overhead, are absorbed into the cost of the product. This means that both variable and fixed production costs are included in the cost of goods sold (COGS) on the income statement.

Marginal Costing:

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