Question

King Tooling has produced and sold the following number of units of their only product during...

King Tooling has produced and sold the following number of units of their only product during their first two years in​ business:

Produced

Sold

Year ended December 31, Year 1

50,000

40,000

Year ended December 31, Year 2

50,000

55,000

Production costs per unit have not changed over the​ two-year period. Under variable​ costing, what is the amount of operating income relative to the operating income shown on the GAAP income statement of the​company?

A.

Year 1

Year 2

Higher

Higher

B.

Year 1

Year 2

Lower

Lower

C.

Year 1

Year 2

Higher

Lower

D.

Year 1

Year 2

Lower

Higher
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Answer #1

Answer : Option D)

Year 1 Year 2
Lower Higher

Under Variable costing Units Cost not includes the Fixed Manufacturing overhead. Total Fixed Manufacturing overheads are Reported as a Period cost .so In the Number Units, Produced is Mora the sold operating income under Variable costing is Lower than the GAAP income statement. If the Sold is more than the Prodcued Variable costing income Statment provides the higher operating income than the GAAP Statement

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