Question

limonade produced 18000 cases of powdered drink. Which costing method produces the highest operating income?

ACCT 2002-007 Online S20 Abby Grosland & Quiz: Quiz 2 - Chapters 20 and 21 Submit Quiz This Question: 2 pts 11 of 11 (10 complete) This Quiz: 25 pts possible Question Help Limonade produced 18,000 cases of powdered drink mix and sold 15,000 cases in April 2018. The sales price was $27, variable costs were $11 per case (58 manufacturing and 53 seling - and administrative), and total fixed costs were $90.000 ($72,000 manufacturing overhead and $18,000 selling and administrative) The company had no beginning Finished Goods Inventory Limonade calculated the cost per unit and the total cost of the 3000 cases in Finished Goods Inventory as of April 30 using both the absorption and variable costing methods The calculations are presented below (Click the icon to view the calculations using the absortion and variable costing methods) Read the requirements Requirement 1. Which costing method produces the highest operating income? Explain why The cost method produces the highest operating income. The primary reason for this is that are distributed across the entire produchon runa part of the unit cost Under the absorption costing method, $ of fixed manufacturing costs are Choose from any list or enter any number in the input fields and then continue to the next question Next Previous ^ . Q & A

Answer 1

Solution Absorption Costing Variable Costix Variable nauufaturing cont per cause (given) fixed manufentuing Loverhead per case 8 * Number of Cansin finished incutry 3 uw $36ew Zuo $2400 * fixed manufacturing on Rate = freed not Total units produced = Floro 72000 $ 4 per case . algowo Requirement 1 t this will Since the value of stocle ending is higher in absorption costing cause lepier opuating Incone. = The absorption cost methed ponduces the highest operating Income. The primary reason for this is that the for

1 M tred ananufacturing cost are elistributed across the entire pretutien gooth as pont of the muit cost. Under the absorption costry methued 72000 of fined mam factus Costs are allocated to the units produced and mac with - Under variable costing methods this amount is expensed as a pered cost and not included in Cost of inventory at the end. weduced and made pent Requirement 2 i Absorption costing methed produces the highest April zo belauce in finished Goods Inventory Reason : (B) The finished goods inventory! under the absorption costing method is higher than under the variable costing method. The brimary reason for this as that the unit cost is higher ander absorption costing because fined manufacturing costs are absorbed by the entire production and not lenpressed as a period cost, as would be under the wavatle Costing methed