Question

1. The following information pertains to Brian Stone Corporation:

Beginning fixed manufacturing overhead in inventory	$45,750
Ending fixed manufacturing overhead in inventory	52,500
Beginning variable manufacturing overhead in inventory	$30,000
Ending variable manufacturing overhead in inventory	14,250
Fixed selling and administrative costs	$724,000
Units produced	5,000 units
Units sold	4,800 units

What is the difference between operating incomes under absorption costing and variable costing?

Answer 1

Answer:

Under absorption costing both fixed and variable manufacturing costs are included as product costs and thus to value invetory.In case of variable costing only variable manufacturing costs are included as product costs and that to value inventory.Therfore, the difference in operating income between two costing method is the treatment of fixed manufacturing costs.

Difference in operating income = Beginning fixed manufacturing overhead - Ending fixed manufacturing overhead

= $60000 - $45000

= $15000