Question

Bianca Bicycle Company manufactures mountain bikes with a variable cost of $1,600. The bicycles sell for...

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
Business   Accounting   
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Answer #1
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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