Question

Kluber, Inc. had net income of $908,000 based on variable costing. Beginning and ending inventories were 55,800 units and 53,600 units, respectively. Assume the fixed overhead per unit was $1.65 for both the beginning and ending inventory. What is net income under absorption costing?

Answer 1

Net Income using absorption costing = $904,370

Step-by-step explanation:

The net income under absorption costing can be determined a=using the following steps below:

Step 1-

Calculate the the Fixed overhead cost per unit

This has been given as - $1.65

Step 2 :

Determine the difference in profit between the the two costing systems

Difference in profit = Fixed overhead cost per unit × change in inventory

- = $1.65× (55,800 - 53,600)

= $3,630

Step 3

Absorption costing profit = profit under variable costing - Difference in profit

= $908,000 - $3,630

= $904,370

Kindly note that absorption costing profit is lower because there was a decrease in the level of inventory. Reverse would be the case if the change was an increase.