Question

At the end of a company's first year of operations, 2,000 units of inventory are on hand. Variable costs are $100 per unit and fixed manufacturing costs are $30 per unit. The use of absorption costing, rather than variable costing, would result in a higher net income of what amount?

Answer 1

absorption income higher by $60000

Step-by-step explanation:

given data

inventory on hand = 2,000 units

Variable costs = $100 per unit

fixed manufacturing costs = $30 per unit

to find out

higher net income of what amount

solution

we know that Absorption cost and variable cost are different in their treatment of the fixed manufacturing costing

so we use of absorption cost that carry over in fix cost into ending inventory is here

absorption cost that carry over = fixed manufacturing costs × inventory on hand

absorption cost that carry over = $30 × 2000

absorption cost that carry over = $60000

so that here this amount is use for variable costing and absorption income higher by $60000