Question

Variable manufacturing costs are $108 per unit, and fixed manufacturing costs are $53,200. Sales are estimated to be 5,300 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 5,300 units and a plan to produce 7,600 units?

Answer 1

• All working forms part of the answer
• To calculate how much the Absorption costing income would differ between the Plan 1(to produce 5300 units) and Plan2( to produce 7600 units), we need to calculate the cost of Goods Sold of 5300 units sold under each Plan.

Working		Plan 1	Plan 2
A	Units produced	5,300	7,600
B	Units Sold	5,300	5,300
C = A - B	Ending Inventory	-	2,300
D	Fixed manufacturing cost	$            53,200.00	$           53,200.00
E = D/A	Fixed manufacturing cost per unit	$                    10.04	$                     7.00
F	Variable manufacturing cost	$                  108.00	$                 108.00
G = E+F	Total unit cost	$                  118.04	$                 115.00
H = B x G	Cost of Goods Sold	$          625,600.00	$        609,500.00

• Summary

Cost of Goods Sold under Plan 1	$          625,600.00
Cost of Goods Sold under Plan 2	$          609,500.00
Difference	$            16,100.00

• Answer: Absorption costing income from operation would differ by $ 16,100.