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Analyzing Income under Absorption and Variable Costing Variable manufacturing costs are $90 per unit, and fixed...

Analyzing Income under Absorption and Variable Costing

Variable manufacturing costs are $90 per unit, and fixed manufacturing costs are $95,400. Sales are estimated to be 8,200 units.

If an amount is zero, enter "0". Do not round interim calculations. Round final answer to nearest whole dollar.

a. How much would absorption costing income from operations differ between a plan to produce 8,200 units and a plan to produce 10,600 units?
$fill in the blank 1

b. How much would variable costing income from operations differ between the two production plans?
$fill in the blank 2

Solutions

Expert Solution


a) $21,566




Working:-

Units Produced

(A)

Total fixed cost

(B)

Fixed cost per unit

C = B / A

Units Produced

(D)

Total fixed cost

(E)

Fixed cost per unit

F = E / D

Units Sold

(G)

Difference in Income

G X ( C - F)

8200

$95,400

$11.63

10,600

$95,400

$9

8200

$21,566



  • Under absorption costing we consider both variable and fixed cost.
  • With the change in the units produced, fixed cost per unit also changes.
  • The change in the income is only due to the change in fixed cost per unit.

  • At 10,600 units the company will earn $21,566 more.






b) 0




Working:-

Units Produced

(A)

Variable cost per unit

(B)

Units Produced

(C)

Variable cost per unit

(D)

Units Sold

(E)

Difference in Income

E X ( B - D)

8200

$90

10,600

$90

8,200

0



  • Under variable costing we consider only variable cost.
  • With the change in the units produced, variable cost remains the same.

ekkarill92 answered 10 months ago
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