Bianca Bicycle Company manufactures mountain bikes with a variable cost of $1,600. The bicycles sell for $2,350 each. Budgeted fixed manufacturing overhead for the most recent year was $11,600,000. Planned and actual production for the year were the same.
Required:
State whether income is higher under variable or absorption costing and the amount of the difference in reported opearting income under the two methods. Treat each condition as an independent case. (Round intermediate calculations to 2 decimal places.)
1. | Production | 22,600 | units |
Sales | 26,200 | units | |
2. | Production | 11,800 | units |
Sales | 11,800 | units | |
3. | Production | 11,900 | units |
Sales | 10,100 | units | |
Higher under | Difference | |
1 | Variable costing | 1847772 |
2 | Same under both | 0 |
3 | Absorption costing | 1754622 |
Workings: | ||
1 | ||
Fixed manufacturing overhead per unit | 513.27 | =11600000/22600 |
Decrease in inventory | 3600 | =26200-22600 |
X Fixed manufacturing overhead per unit | 513.27 | |
Difference | 1847772 | |
3 | ||
Fixed manufacturing overhead per unit | 974.79 | =11600000/11900 |
Increase in inventory | 1800 | =11900-10100 |
X Fixed manufacturing overhead per unit | 974.79 | |
Difference | 1754622 |
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