Question

Straight Scissors generated an income from operations of $63,500 using the absorption costing method. The company...

Straight Scissors generated an income from operations of $63,500 using the absorption costing method. The company sold 39,560 units, although it produced 22,300 units. The fixed manufacturing costs totaled $7 per unit, while variable manufacturing costs totaled $15 per unit.
Required: Determine the income from operations using the variable costing method.

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Answer #1
Units Sold 39560
Less: Units Produced from current period 22300
Opening Inventory Units 17260
Income under absorption Costing 63500
Add: Additional Cost of Fixed Manufacturing OH of Opening Inventory Sold in Current Period Booked in Absorption Costing 120820
Income under Variable Costing 184320
Note: Under Absorption Costing Fixed Manufacturing OH are included in Product Costs and are accounted accordingly whereas in Variable Costing, these are charged off completely as period costs and not part of product cost
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