Question

A manufacturer reports the following information below for its first three years in operation.

Year 1 Year 2 Year 3
Income under variable costing $ 76,000 $ 109,000 $ 115,000
Beginning inventory (units) 0 800 500
Ending inventory (units) 800 500 0
Fixed manufacturing overhead per unit $ 8.00 $ 8.00 $ 8.00
Income for year 3-year period using absorption costing is:

a.$305,000.
b.$280,000.
c.$300,000.
d. $310,000.
e. $308,000.

Answer 1

Income using absorption costing =$300.,000

Step-by-step explanation:

The difference between the profits under the two costing systems is the manner in which inventory is valued.

Absorption costing profit = Variable costing profit +/- difference in profit

Difference in profit = OAR × change in inventory

Change in inventory = opening inventory - closing inventory

Hence for this question,

Opening inventory = 800 +500= 1,300 units

Closing inventory = 800 +500= 1,300 units

change in inventory = 0

Difference in profit = 8.00 × 0= $0

Income using Absorption costing is equal to =

Income using variable costing - difference in profit

= 176,000 $ + 109,000 + $ 115,000 - $0

=$300,000