Question

1. ABC Inc., began the year with 10,000 units in stock but finished with 5,000 units. It produced 45,000 units for the period. Its selling price is $12 per unit, variable manufacturing cost is $5 per unit, and variable selling is $3 per unit. Fixed manufacturing and selling costs are $100,000 and $77,000 respectively.

The firm notes that variable cost per unit (both mfg and SGA) was the same this and the prior year.

What is the income under variable costing?

2. Refer to the prior problem. The firm informs you that inventory values under absorption costing decreased by $33,000. Compute (Income as reported under variable costing - Income as reported under absorption costing), noting that it is change in FMOH between the opening and closing inventory accounts.

3. ABC corporation informs you that is CM per unit of its product is $6 per unit and that this value has stayed constant for several years. Fixed manufacturing and selling costs are $100,000 and $75,000 respectively. The firm informs you that the change in inventory values (a decrease) was $22,000 under absorption costing and was $10,000 under variable costing. What is the income reported under absorption costing, if the firm sold 50,000 units? Assume FIFO cost flow.

4. Juno Corp began the year with 1,000 units in inventory, produced 10,000 units and sold 10,400 units. The units in opening (ending) inventory had FMOH of $10 per unit ($12 per unit). Compute (income under variable costing - income under absorption costing) if the firm uses LIFO to value inventories.

Answer 1