Question

Variable Costing—Sales Exceed Production

The beginning inventory is 14,200 units. All of the units that were manufactured during the period and 14,200 units of the beginning inventory were sold. The beginning inventory fixed manufacturing costs are $35 per unit, and variable manufacturing costs are $84 per unit.

a. Determine whether variable costing income from operations is less than or greater than absorption costing income from operations.

b. Determine the difference in variable costing and absorption costing income from operations.
$

Answer 1

SOLUTION

1.

Beginning Inventory Units	14,200
Fixed Cost per unit	$35
Total Beginning Inventory costs	497,000

Now in Variable costing, these opening fixed costs would have been charged during previous year whereas in Absorption costing these Fixed costs would be part of this year.

Thus as per Variable costing total fixed costs would be less as compared to previous year since all the units produced in this period are sold.  

2. Difference in variable costing and absorption costing income from operations

= $497,000