Question

Jupiter Corporation incurred fixed manufacturing costs of $18,000 during 2017. Other information for 2017 includes:

The budgeted denominator level is 2,400 units
Units produced total 2,700 units
Units sold total 1,600 units
Variable cost per unit is $4
Beginning inventory is zero
The fixed manufacturing cost rate is based on the budgeted denominator level.
The operating income using variable costing will be​ ________ as compared to the operating income under absorption costing.​ (Round any intermediary calculations to the nearest cent and your final answer to the nearest​ dollar.)
O higher by $8,250.00
O lower by $2,250.00
O lower by $8,250.00
O higher by $2,250.00

Answer 1

The operating income using variable costing will be lower by $8,250.00 as compared to the operating income under absorption costing.

Step-by-step explanation:

The operating income using variable costing will be lower by $8,250.00 as compared to the operating income under absorption costing.

In absorption costing, fixed manufacturing costs are included in the inventory cost and are expensed when the product is sold.

In variable costing, fixed manufacturing costs are treated as period expenses and are deducted directly from revenue.

In this case, the fixed manufacturing costs of $18,000 will not be included in the cost of goods sold under variable costing, resulting in a lower operating income of $8,250.00.

Answer 2

Lower by $8,250

Step-by-step explanation:

The operating income reported will be different as the unit level of inventory increased during the account period .

Denominator rate:

= Fixed manufacturing costs ÷ Budgeted denominator level

= 18,000 ÷ 2,400

= 7.5

Operative income:

= Total Units produced - (Total units sold × Denominator rate)

= 2,700 - (1,600 × 7.5 )

= 1,100 × 7.5

= $8,250

Lower by $8,250 under the variable costing because 8250 of fixed manufacturing cost remain in inventory under absorption.