Veach Corporation incurred fixed manufacturing costs of $6,000 during 2015. Othe
ID: 2530960 • Letter: V
Question
Veach Corporation incurred fixed manufacturing costs of $6,000 during 2015. Other information includes:
The budged denominator level is 1,000 units.
Units produced total 750 units.
Units sold total 600 units.
Beginning inventory was zero.
The company uses variable costing and the fixed manufacturing cost rate is based on the budgeted denominator level.Manufacturing variances are closed to cost of goods sold.
Fixed manufacturing costs included in ending inventory total __________.
Operating income using variable costing will be __________ than operating income if using absorption costing.
Explanation / Answer
Fixed manufacturing costs included in ending inventory total...........
Answer: In variable costing no fixed manufacturing costs are included in inventory and all are expensed on the income statement as a lump sum.
Operating income using variable costing will be......Than operating income of using absorption costing.
Answer:
Operating incomes reported will be different as the unit level of inventory increased during the accounting period by (750 -600 units) 150 units × $6 denominator rate = $900.
So, operating income is less by $900 under variable costing because $900 of fixed manufacturing costs remains in inventory under absorption.
Note: $ 6 denominator rate is calculated as
$6,000/1000 units = $6
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