Question 19 Doc Rowan Corporation sells one product, its waterproof hiking boot.

Question

Question 19 Doc Rowan Corporation sells one product, its waterproof hiking boot. It began operations in the current year and had an ending inventory of 8,500 units The company sold 20,000 units throughout the year. Fixed manufacturing overhead is $5 per unit, and total manufacturing cost per unit is $20 (including fixed manufacturing overhead costs). What is the difference in net income between absorption and variable costing? ill report a$ higher net income than Absorption costing Variable costing Click if you would like to Show Work for this question: Open Show Work LINK TO TEXT

Explanation / Answer

Absorption costing will report a 42500 higher net income than variable costing.

In absorption costing Fixed costs forms part of ending inventory balance where as fixed costs in variable costing are period costs and charged to profit and loss in that period itself, hence in absorption costing for ending inventory related fixed costs= 8500*5= 42500 are part of ending inventory balance, hence will report higher net income to that extent.

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