Question

Fixed manufacturing costs are $44 per unit, and variable manufacturing costs are $100 per unit. Production was 67,200 units, while sales were 50,400 units. Determine (a) whether variable costing operating income is less than or greater than absorption costing operating income, and (b) the difference in variable costing and absorption costing operating income.

Answer 1

a. Less

b. $739,200

Step-by-step explanation:

a. As we know that

Under the variable costing, all the variable cost i.e direct material, direct labor, variable manufacturing overhead are considered

And, under the absorption costing, all the fixed cost and the variable cost are considered i.e direct material, direct labor, variable manufacturing overhead, fixed variable manufacturing overhead, fixed and variable selling and admin expenses are considered

So based on this, the variable costing operating income is less than the absorption costing due to the fixed cost

b. And, the difference amount is

= [67,200 Units – 50,400 Units] × $44 per unit

= 16,800 Units × $44 per unit

= $739,200