Question

Use the following data to prepare a reconciliation converting variable costing income to absorption costing income...

Use the following data to prepare a reconciliation converting variable costing income to absorption costing income like Exhibit 19.12 on Page 746. After showing the reconciliation write a sentence or two about why the reconciling item(s) are in one type of income, but not the other:

Variable Costing income $600,000

Absorption Costing Income $750,000

Fixed Overhead Cost recognized from beginning inventory (15,000 units x $10)

Fixed Cost Deferred in ending inventory (15,000 units x $10)

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Answer #1
Reconciliation
Variable costing Income        600,000
Add: Fixed overhead deferred in ending inventory        150,000
Absorption costing income        750,000
Fixed manufacturing overhead is absorbed into products under absorption costing
They are charged as period costs under variable costing
Hence, when units sold are less than produced, absorption costing income will be higher
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