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NEW QUESTION: 1
A manufacturing company employs variable costing for internal reporting and analysis purposes. However, it converts its records to absorption costing for external reporting.
The Accounting Department always reconciles the M o operating income figures to assure that no errors have occurred in the conversion. The fixed manufacturing overhead cost per unit was based on the planned level of production of 480.000 units. Financial data for the year are presented below:
The difference between the operating income calculated under the variable costing method and the operating income calculated under the absorption costing method would be:
A. US $60,000
B. US $90,000
C. US $57,600
D. US $120,000
Answer: A
Explanation:
The difference between variable costing and absorption costing is that the former treats fix d manufacturing overhead as a period cost. The latter method treats it as a product cost Given that sales exceeded production, both methods expense all fixed manufacturing overhead incurred during the year. However, 10.000 units 510.000 sales - 500.000 production) manufactured in a prior period were also sold. Thy_ e units presumably were recorded at US $10 under variable costing and US $16 under absorption costing. Consequently. absorption costing operating income is US $60.000 10.000 units $6) less than that under variable costing.
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