For 10 Pts: Level Corp. manufactured 32,000 units and sold 24,000 units during t

Question

For 10 Pts: Level Corp. manufactured 32,000 units and sold 24,000 units during the month. Variable manufacturing costs were $12.00 per unit and variable selling and administrative costs were $4.00 per unit. Fixed manufacturing costs were $5.00 per unit and Fixed selling and administrative costs were $1.50 per unit. What would be the effect on income from operations if variable costing is used instead of absorption? A. $40,000 decrease B. $52,000 decrease C. $44,000 decrease D. $40,000 increase For 10 Pts. Level Corp. 32 /99

Explanation / Answer

Number of units produced = 32,000
Number of units sold = 24,000

Number of units in ending inventory = Number of units produced - Number of units sold
Number of units in ending inventory = 32,000 - 24,000
Number of units in ending inventory = 8,000

Fixed Manufacturing Cost per unit = $5.00

Difference between Income from Operations using Absorption Costing and Income from Operations using Variable Costing = Number of units in ending inventory * Fixed Manufacturing Cost per unit
Difference between Income from Operations using Absorption Costing and Income from Operations using Variable Costing = 8,000 * $5.00
Difference between Income from Operations using Absorption Costing and Income from Operations using Variable Costing = $40,000

So, income from operations will decrease by $40,000 if variable costing is used instead of absorption costing.

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