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    cjohnson1's Avatar
    cjohnson1 Posts: 1, Reputation: 1
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    #1

    May 2, 2010, 04:38 PM
    What is the effect on income from operations using absorption costing?
    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's Avatar
    rehmanvohra Posts: 739, Reputation: 27
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    #2

    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.
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