Question

Dalton Corporation has fixed manufacturing cost of $10 per unit. Consider the three independent cases that...

Dalton Corporation has fixed manufacturing cost of $10 per unit. Consider the three independent cases that follow.

Case A: Absorption- and variable costing income each totaled $260,000 in a period when the firm produced 18,000 units.

Case B: Absorption-costing income totaled $340,000 in a period when finished-goods inventory levels rose by 9,000 units.

Case C: Absorption-costing income and variable-costing income respectively totaled $240,000 and $290,000 in a period when the beginning finished-goods inventory was 18,000 units.

Required:

A. In Case A, how many units were sold during the period?

B. In Case B, how much income would Dalton report under variable costing?

C. In Case C, how many units were in the ending finished-goods inventory?

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Answer #1
Case-A
As the net income of both the costing is same, there will be no change in inventory level.
Hence, units produced is units sold
Units sold = 18000
Case-B
Net Income as per Absorption costing 340000
Less: Fixed MFg oh deferred in ending inventory -90000
Net Income as per Variable costing 250000
CaseC
As income under Absorption is lower than Variable costing by $50,000
Therefore, the ending inventory level has been reduced by:
Difference in income 50000
Divide: Fixed MFg oh per unit 10
Ending inventory reduced by 5000 units
Ending inventory units = 18000-5000 = 13000 units
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