Question

KP’s unit production cost under variable costing is $6, and $8 under absorption costing. Net income under variable costing was $10500 and $12500 under absorption costing last year. EKP sold 17500 units. How many units did it produce? 18500 16500 19250 15500

Answer 1

Net income under variable costing = $10,500

Net income under absorption costing = $12,500

Net income is higher absorption costing by = Net income under absorption costing - Net income under variable costing

= 12,500 - 10,500

= $2,000

Cost per unit under variable costing = $6

Cost per unit under absorption costing = $8

Fixed product cost per unit = Cost per unit under absorption costing - Cost per unit under variable costing

= 8 - 6

= $2

Net income is higher under absoption costing due to ending inventory.

Ending inventory units = Difference in net income/Fixed product cost per unit

= 2,000/2

= 1,000

Number of units sold = 17,500

Number of units produced = Number of units sold + Ending inventory units

= 17,500 + 1,000

= 18,500 units

First option is correct.