In: Accounting
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.
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