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High Company in 2019 produced 10,000 units and sold 9,000 units. There were no beginning inventory...

High Company in 2019 produced 10,000 units and sold 9,000 units. There were no beginning inventory for 2019. The difference in net income between absorption costing and variable costing is $10,000. How much is the company's fixed manufacturing overhead cost?

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Answer #1

The net operating income under absorption costing is $10,000 higher than the net operating income under variable costing. This difference is because of fixed manufacturing overhead that becomes the part of ending inventory under absorption costing system. The ending inventory absorbs a portion of fixed manufacturing overhead.

therefore,

Fixed overhead absorbed in closing inventory=$10000

Fixed Overhead absorbed per unit = $10000 / 1000 units = $10 per unit

Total fixed overhead = 10000 units x $10 = $100000

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