Question

In: Accounting

PRODUCTION UNITS 100 END INV UNITS 20 TOTAL PRODUCTION COST 20000 EUROS TOTAL FIXED MOH 1000...

PRODUCTION UNITS 100

END INV UNITS 20

TOTAL PRODUCTION COST 20000 EUROS

TOTAL FIXED MOH 1000 EUROS

a. Data is missing

b. Full Costing OPINC 200 EUROS higher than VC OPINC

C. Full Costing OPINC =VC OPINC

d. Full Costing OPINC 200 euros lower than VC OPINC

Expert Solution

b. Full Costing OPINC 200 EUROS higher than VC OPINC

Solution :

Under Full costing, the fixed MOH(manufacturing overhead) is taken as product cost where as in VC(variable costing) fixed MOH is taken as period cost. That means, under Full costing fixed MOH is allocated to the number of units produced, so the ending inventory cost includes fixed MOH. But under VC fixed MOH is not allocated to the units produced, so the cost of ending inventory under VC do not include fixed MOH.

Accordingly,

MOH per unit produced = €1000/100 = €10 per unit.

MOH allocated to ending inventory = €10×20 = €200

Therefore, by this amount the cost of goods sold differs in under this two methods i.e. ending inventory value under Full costing is 200 euros more than the VC ending inventory value.

As full costing ending inventory value is more than the VC ending inventory, the cost of goods sold under Full costing is lower than VC. When cost of goods sold under Full costing is lower, OPINC(operating income) will be more compared to OPINC under VC.

Therefore,

Full Costing OPINC 200 EUROS higher than VC OPINC.

ekkarill92 answered 2 years ago

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