2.S&P Enterprises sold 10,000 units of inventory during a given period. The leve

Question

2.S&P Enterprises sold 10,000 units of inventory during a given period. The level of inventory of the manufactured product remained unchanged. The manufacturing costs were as follows:

Which of the following statements is true?

a.Net income under absorption costing will be $40,000 more than under variable costing.

b.Net income under variable costing will be $45,000 less than net income under absorption costing.

c.Net income will be the same under both variable and absorption costing.

d.The difference in net income cannot be determined.

Variable Fixed Unit manufacturing costs of the period $11.00 $7.00 Unit operating expenses of the period 3.00 2.50

Explanation / Answer

C. Net income will be the same under both variable and absorption costing,

because of the inventory remained unchanged. If the level of inventory increases then the fixed maunfacturing cost deferred to inventory,also, when the level of inventory decreases, the fixed manufacturing cost is released from inventory, also the net income will be not same in that situation.

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