Comparing full absorption and variable costing Cost More recent year of operatio
ID: 2709895 • Letter: C
Question
Comparing full absorption and variable costing
Cost
More recent year of operation follows
1 Without any calculation explain whether Presidio's profit will be higher with full absorption costing or varable costing?
2. Prepare a full absorption costing income statement and variable costing income ststement for Presidio. Assume there was no beginning inventory.
3. Compute the difference in profit betweem full absorption costing and variable costing. Reconcile the difference.
Cost Data Number of bikes produced and sold 625 800 1050 Total Cost Variable Cost $ 125,000 $ ? $ ? Fixed cost per year ? ? ? Total Cost ? ? ? Cost per unit Variable cost per unit ? ? ? Fixed cost per unit ? ? ? Total cost per unit ? $ 543.75 ?Explanation / Answer
The profit will be higher with full absorption costing because, even though the Gross contribution margin might be equal in both absorption and variable costing method but fixed cost would be greatly apportioned to the production units in case of variable costing as compared to absorption costing.
Therefore, Presidio's profit will be higher with full absorption costing method as compared to variable costing method.
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