Here's the question: A single-product company prepares I/S using both absorption and variable costing methods. Manufacturing OH cost applied per unit produced in 09 was tha same as in 08. The 09 variable costing statement reported a profit whereas the 09 absorption costing statement reported a loss. The difference in reported income could be explained by unit produced in 09 being:

Answer: Less than units sold in 09. This is true because under var costing, the amt of overhead included in COGS is the amount applied in 09 (since all units produced were sold), whereas under absorption costing the overhead released to COGS included that applied in 09as well as overhead included in 09 year-end inventory.

Can someone further explain the explanation on this answer? I thought that since overheard is capitalized under the absorption costing, NI would be higher under this method compared to variable costing...I'm confused. Help! Thank you.