Question

Bianca Bicycle Company manufactures mountain bikes with a variable cost of $1,600. The bicycles sell for $2,350 each. Budgeted fixed manufacturing overhead for the most recent year was $11,600,000. Planned and actual production for the year were the same.

State whether income is higher under variable or absorption costing and the amount of the difference in reported opearting income under the two methods. Treat each condition as an independent case. (Round intermediate calculations to 2 decimal places.)

1.	Production	22,600	units
	Sales	26,200	units
2.	Production	11,800	units
	Sales	11,800	units
3.	Production	11,900	units
	Sales	10,100	units

Answer 1

	Income Higher under (menthod)	Amount of Diffrence
1	Variable costing	1,855,512
2	Same under both	0
3	Absorption costing	1,747,710
		Situation 1	Situation 2	Situation 3
	Fixed manufacturing Overhead(Total)	11,600,000	11,600,000	11,600,000
	Divided by Production	22,600	11,800	11,900
	Fixed manufacturing Overhead(per unit)	515.42	983.05	970.95
	Sales Units	26,200	11,800	10,100
	Beginning Inventory	3,600	-	0
	Ending Inventory	-	-	1,800
	Amount of Difference in income	1,855,512		1,747,710
	(Inventory * Fixed MOH (Per unit)