Fixed costs are P10 per unit and variable costs are P25 per unit. Production was 13,000...

Fixed costs are P10 per unit and variable costs are P25 per unit. Production was 13,000 units, while sales
were 12,000 units. Determine (a) whether variable cost income from operations is less than or greater
than absorption costing income from operations, and (b) the difference in variable costing and absorption
costing income from operations.

Solutions

Expert Solution

Variable cost per unit = P 10 per unit

Fixed cost per unit = P 25 per unit

Units produced = 13,000 units

Units sold = 12,000 units

a) Under variable costing method, entire fixed cost is charged to income statement. where as under absorption costing method, fixed cost is charged proportionate to the units sold. balance fixed cost portion resides in the ending inventory.

Under variable costing total cost is (13,000 * 10) + (12000 * 25) = $430,000

Under absorption costing total cost is (12,000 * 10) + (12,000 * 25) = $420,000

Since Total cost in Variable costing is higher than that of cost in absorption costing, The Variable costing income from operations is less than absorption costing income from operations.

answer is less than.

b) Difference is $430,000 - $420,000 = $10,000

Income from operations under variable costing is $10,000 less than that of Income from operations under absorption costing

Answer is $10,000

ekkarill92 answered 1 year ago

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