PDA

View Full Version : What is the effect on income from operations using absorption costing?


cjohnson1
May 2, 2010, 04:38 PM
The level of inventory of a manufactured product has increased by 8,000 units during a period. The following data are also available:

Unit manfacturing costs of the period: Variable: $12.00 Fixed: $5.00
Unit operating expenses of the period: Variable: 4.00 Fixed: 1.50

What would be the effect on income from operations if absorption costing is used rather than variable costing?

rehmanvohra
May 3, 2010, 11:22 PM
It would have been a great help if you:

(a) state all the data relevant to the problem; and,
(b) show what you have done to solve it.

I am sure you do know that the reason for the difference in the absorption costing and variable costing profits is due to the element of fixed manufacturing costs in the inventory. I think you can work it out on this basis.