Question

Variable Costing-Sales Exceed Production The beginning inventory is 24,100 units. All of the units that were manufactured during the period and 24,100 units of the beginning inventory were sold. The beginning inventory fixed manufacturing costs are $62 per unit, and variable manufacturing costs are $110 per unit. a. Determine whether variable costing operating income is less than or greater than absorption costing operating income. b. Determine the difference in variable costing and absorption costing operating income.

Answer 1

Under variable costing there is only variable overheads considered for computation of operating income., Which is kept fixed cost seperately from production.

But under absorption costing method, both fixed and variable overheads considered for getting operating income.

Q no. a)

✓That too when sales exceeded the production level i.e. along with beginning inventory, then obviously ending inventory is less than the beginning inventory, hence operating income under absorption costing is greater than variable costing method.,

Q.no . b)

✓difference of variable and absorption costing operating income is equal to the difference of variable and fixed cot per unit i.e =($110-$62)=$48

=$48*24,100

=$1,156,800

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