Corporation just started business in January. There were no beginning inventorie
ID: 2478450 • Letter: C
Question
Corporation just started business in January. There were no beginning inventories. During the year, it manufactured 12,000 units of product, and sold 10,000 units. The selling price of each unit was $20. Variable manufacturing costs were $4 per unit, and variable selling and administrative costs were $2 per unit. Fixed manufacturing costs were $24,000, and fixed selling and administrative costs were $6,000. What would be the difference in Timmer’s net income for the year if it used variable costing instead of absorption costing? a. $2,000 greater b. $6,000 less c. $4,000 less d. no difference
Explanation / Answer
c. $4,000 less Produced 12,000.00 Sold 10,000.00 Closing inventory = 12,000 - 10,000 2,000.00 Statement showing computations Particulars Amount Fixed Manufacturing Costs 24,000.00 No of Units produced 12,000.00 Fixed Manu cost per unit 2.00 Fixed Cost In Ending Inventory = 2,000*2 4,000.00 So as per Absorption costing, Total cost would be less by 4,000 It means income would increase by $4,000 Thus under Variable Costing income would be $4,000 less