Question

Bianca Bicycle Company manufactures mountain bikes with a variable cost of $2,100. The bicycles sell for $2,850 each. Budgeted fixed manufacturing overhead for the most recent year was $12,100,000. Planned and actual production for the year was the same.

Required:

State whether income is higher under variable or absorption costing and the amount of the difference in reported operating income under the two methods. Treat each condition as an independent case. (Round intermediate calculations to 2 decimal places.)

1.	Production	23,100	units
	Sales	27,200	units
2.	Production	12,800	units
	Sales	12,800	units
3.	Production	12,650	units
	Sales	10,350	units
	Please show work.

Answer 1

1) in first case when production is 23100 units and sales is 27200 units it means income under variable costing will be higher than absorption costing by (12100000/23100*4100) = 2147619

2) in second case when production is 12800 units and sales is 12800 units it means income under variable costing and absorption costing will be same

3) in third case production is 12650 units and sales is 10350 unit so income under absorption costing is higher than variable costing by (12100000/12650*2300) = 2200000