Variable Costing-Sales Exceed Production The beginning inventory is 9,500 units.

Question

Variable Costing-Sales Exceed Production The beginning inventory is 9,500 units. All of the units that were manufactured during the period and 9,500 units of the beginning inventory were sold. The beginning inventory fixed manufacturing costs are $48 per unit, and variable manufacturing costs are $102 per unit. a. Determine whether variable costing income from operations is less than or greater than absorption costing income from operations Variable costing income from operations is greater than absorption costing. b. Determine the difference in variable costing and absorption costing income from operations.

Explanation / Answer

b $                                           456,000 =48*9500 In case of Absorbtion costing fixed manufacturing cost of $48 per unit would also be charged in the cost of goods sold whereas in case of variable costing inly variable cost of opening inventory is considered. a 8800 =68800/8600*(8600-7500) In case of absorbtion costing if 7500 units produced and sold no cost need to trnasfered to next year in form of closing inventory cost. But if 8600 units produced there would be decrease in fixed manufacturing cost per unit and fixed manufacturing cost on 1100 units would be transfered to next year in form of closing inventory cost., b 0 In case of variable costing all the fixed cost is charged of in the same year irrespective of the fact that there is closing inventory so there would not be any change.

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