Begiining Inventory in Units 0 Units produced 4,800 Units Sold 4,000 Sales $400,

Question

Begiining Inventory in Units 0

Units produced 4,800

Units Sold 4,000

Sales $400,000

Material Cost ( unit level/variable) $96,000

Variable Conversion Cost Used $ 48,000

Fixed Manufacturing Cost (Facility Level) $72,000

Indeirect Operating Cost(fixed) $80,000

Show all solutions step by step.

1. What is the cost of goods sold under variable costing?

2. The cost of goods sold under absortion costing is?

3. The operating income under variable costing?

4. The operating income under absorption costing?

5. The ending inventory under variable costing?

6. The ending inventory under absortion costing?

7. The difference between the variable costing ending inventory cost and the absorption costing ending inventory cost is?

Explanation / Answer

First of all we must understand that under variable costing we consider only the variable portion to calculate inventory cost and in absorption costing we consider all variable and fixed costs to calculate inventory costs.

Solution 1) Total variable costs * Units sold / total production = $144000 * 4000 / 4800 = $120,000

2) Total costs variable and fixed * units sold / total production = $296000 * 4000 / 4800 = $246665

3) Operating Income under variable cost=sales - cost of goods sold - fixed costs

= 400000 - 120000 - 152000 = $128000

4) Operating Income under absorption cost=sales - cost of goods sold

= 400000 - $246665 = $153335

5) Ending inventory under variable costing = $144000 * 4000 / 800 = $24000

6) Ending inventory under absorption costing = $296000 * 4000 / 800 = $49333

7) Difference between the variable costing ending inventory cost and the absorption costing ending inventory cost is $24000 - $49333 = - $25333

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