Question

Haier Corporation incurred fixed manufacturing costs of $6,000 during 2019. Other information for 2019 includes:            ...

Haier Corporation incurred fixed manufacturing costs of $6,000 during 2019. Other information for 2019 includes:

            The budgeted denominator level is 1,000 units.

            Units produced total 750 units.

            Units sold total 600 units.

            Beginning inventory was zero.

The company uses absorption costing and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold.

Operating income using absorption costing will be ________ than operating income if using variable costing

Group of answer choices

$2,400 lower

$2,400 higher

$3,600 lower

$900 higher

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Answer #1
Ans. Option 4th $900 higher
*Calculations for fixed manufacturing overhead rate :
Fixed overhead rate = Fixed manufacturing cost / Budgeted denominator level
$6,000 / 1,000
$6 per unit
*Calculations for ending inventory units :
Ending invnetory units = Units produced - units sold
750 - 600
150 units
*Calculations for the difference between variable and absorption costing net income :
Difference = Ending inventory units * Fixed overhead rate
150 * $6
$900
*When units produced are greater than units sold, then the net income under
absorption costing is higher than variable costing.
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