Variable Costing—Production Exceeds Sales Fixed manufacturing costs are $37 per unit, and variable manufacturing costs are...

Variable Costing—Production Exceeds Sales

Fixed manufacturing costs are $37 per unit, and variable manufacturing costs are $111 per unit. Production was 91,000 units, while sales were 86,450 units.

a. Determine whether variable costing income from operations is less than or greater than absorption costing income from operations.

b. Determine the difference in variable costing and absorption costing income from operations.
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Expert Solution

Requirement a

Variable costing income from operations is less than absorption costing income from operations.

This is because product cost in absorption costing is more than product cost in variable costing so some portion of fixed manufacturing overhead is absorbed by ending unsold inventory in absorption costing whereas variable costing charges all fixed overhead in the year no matter how many units are sold. Absorption costing includes fixed manufacturing into product cost whereas Variable

Requirement b

Difference in operating income = $168,350

Working

	Absorption	Variable	Difference
Product cost	$ 148.00	$ 111.00
Units in ending inventory	4550	4550
Cost of ending inventory	$ 673,400.00	$ 505,050.00	$ 168,350.00

ekkarill92 answered 1 year ago

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