Columbia Corporation produces a single product. The company\'s variable costing
ID: 2569001 • Letter: C
Question
Columbia Corporation produces a single product. The company's variable costing income statement for November appears below:
During November, 35,710 units were manufactured and 8,490 units were in beginning inventory. Variable production costs have remained constant on a per unit basis over the past several months.
Under absorption costing, for November the company would report a:( $ profit or loss )
Columbia Corporation Income Statement For the Month ended November 30 Sales ($22 per unit) $ 952,600 Variable expenses: Variable cost of goods sold 606,200 Variable selling expense 129,900 Total variable expenses 736,100 Contribution margin 216,500 Fixed expenses: Manufacturing 107,130 Selling and administrative 35,710 Total fixed expenses 142,840 Net operating income $ 73,660Explanation / Answer
Absorption costing would report a loss.
The explanation is as follows:
Sales units (952600/22) = 43300 units
That means, sales from closing inventory of OCt month has also been taken place.
Under variable costing, the fixed manufacturing overhead of current month has been taken in to consideration. However, while making income statement under absorption costing, additional fixed manufacturing expense on closing units of october month should also be added i cost of goods manufactured. hence, reduction in prifts. Hence, loss.