A company prepares income statements using both absorption costing and variable costing methods.  For the month just ended, unit standard costs were unchanged from the previous month.  In the month just ended, the only beginning and ending inventories were finished goods of 5,000 units.  How would A company ratios using absorption costing compare with those using variable costing?

Answer:

Current ratio is greater, and return on equity is smaller.

I don’t understand the reason why return on equity is smaller.  The beginning balance and ending balance of finished goods were same.  So, net income should be also same between two methods.   Then, why is the return on equity smaller in the absorption costing?

Please someone advise.