Bianca Bicycle Company manufactures mountain bikes with a variable cost of $2,10

Question

Bianca Bicycle Company manufactures mountain bikes with a variable cost of $2,100. The bicycles sell for $2,850 each. Budgeted fixed manufacturing overhead for the most recent year was $12,100,000. Planned and actual production for the year was the same.

Required:

State whether income is higher under variable or absorption costing and the amount of the difference in reported operating income under the two methods. Treat each condition as an independent case. (Round intermediate calculations to 2 decimal places.)

1. Production 23,100 units Sales 27,200 units 2. Production 12,800 units Sales 12,800 units 3. Production 12,650 units Sales 10,350 units Please show work.

Explanation / Answer

1) in first case when production is 23100 units and sales is 27200 units it means income under variable costing will be higher than absorption costing by (12100000/23100*4100) = 2147619

2) in second case when production is 12800 units and sales is 12800 units it means income under variable costing and absorption costing will be same

3) in third case production is 12650 units and sales is 10350 unit so income under absorption costing is higher than variable costing by (12100000/12650*2300) = 2200000

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