Manta Ray Company manufactures diving masks with a variable overhead for the mos

Question

Manta Ray Company manufactures diving masks with a variable overhead for the most recent year was $791700. Actual production was equal to planned production Required: State whether operating income is higher under variable or absorption costing and the amount of the difference in reported operating income under the two methods. Treat each condition as an independent case. (Do not round intermediate calculations.) cost of $20. The masks sell for $29. Budgeted ixed manufacturing points 1. Production 2 Prodaction 3. Produet.ion 101,500 units 99,400 units 91,000 units 96,100 units 9,000 units 79,000 unite eBook Sales sales Print Sales References

Explanation / Answer

Fixed overhead will be shown as recovery rate in abosrption costing but in variable costing there not inclusive of fixed overhad in production cost. So if there is closing stock in the system than there is more income in absorption costing and less in variable costing. And if there is sales is more than production means there is opening inventory is available than in variable costing income is greater than absorption costig 1) Production 101,500 units and sales 99,400 units it means there is closing stock is available and profit in absorption costing is greater than variable costing Recovery Rate of fixed overhead = $ 791,700 / 101,500 = $ 7.80 per units Difference = 101,500 units - 99,400 units = 2,100 Units X $ 7.80 = $                       16,380 2) Production 91,000 units and sales is 96,100 units Recovery Rate of fixed overhead = $ 791,700 / 91,000 units = $ 8.70 per units In this sales is more than production so in variable costing we get more profit Differnce = 91,000 untis - 96000 units = 5,000 units X $ 8.70 = $                       43,500 3) In this case there is no difference because production and sales units both are coming same units

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