A company with fixed manufacturing costs of $500,000 produces 100,000 units in 2020 and 125,000 units...

A company with fixed manufacturing costs of $500,000 produces 100,000 units in 2020 and 125,000 units in 2021. The company sells 90,000 units each in both years. Other costs and selling price are unchanged for 2020 and 2021. Assume that there was no beginning inventory in 2020. Which of the following is true? Variable costing income will be greater in 2020 than in 2021. The dollar amount of ending inventory will be greater in 2020 than in 2021. Variable costing income will be the same in 2021 and 2020.

Expert Solution

Answer :

Compmy has produced 100,000 units each in 2020 and 2021.The fixed costs per year are $500,000.

Under variable costing method, all the fixed costs are expended in the year in which they are incured. Whereas under full costing method, manufacturing fixd costs are treated as product costs and are charge.° income statement basing on the numbet of goods sold.

In simple words under vartable coning method, product Cost constitutes of only manufacturtng variable expenses where as ha total costing method product costs constitutes of manufactunag variable and fixed costs.

Under variable costing method. Al the fixed costs are expended in the year they are immured As the company sold same slumber ofunits at same price inoming same amount of costs ,Income under variable costing method remain same for both year.
Under total costing method, manufacturing fixed costs are treated as product costs.
Manufacnning cost per unit in 2020 is
$500,000÷100,000 =$5
Manufacturing con per unit in 2021 is
500,000÷125,000 =$4
Cost pet unit in 2020 wlll be more than cost per unit in 2021 by $1.

Hence the income in 2021 will be greater than of income in 2020 as cost per unit is less in 2021 when compared with 2020.

Hence correct option is Variable costing income will be the same in 2021 and 2020.

ekkarill92 answered 1 year ago

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A company with fixed manufacturing costs of $500,000 produces 100,000 units in 2020 and 125,000 units...

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