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Chapter 21: Q-21-5RQ (page 1166)

When units produced exceed units sold, how does operating income differ between variable costing and absorption costing? Why?

Short Answer

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Answer

Operating income under absorption costing is higher compared to variable costing because some fixed costs remain in ending inventory unexpended.

Step by step solution

01

When units produced exceed units sold

When units produced are not equal to units sold, it means there is some balance in ending inventory.

02

Difference in operating income

When units produced exceed units sold the operating income from the absorption method is higher than the operating income from the variable costing method because under absorption costing some fixed manufacturing overhead remains unexpended and reflected in the balance sheet.

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Most popular questions from this chapter

When units produced are less than units sold, how does operating income differ between variable costing and absorption costing? Why

Comparing variable and absorption costing Refer to Exercises E21-16 and E21-17.

Requirements:

  1. Which costing method produces the highest operating income? Explain why.
  2. Which costing method produces the highest April 30 balance in Finished Goods Inventory? Explain why

When should a company use absorption costing when setting sales prices? When should it use variable costing?

Computing unit product cost, absorption costing Calculate the unit product cost using absorption costing. Round your answer to the nearest cent.

Use the following information for Short Exercises S21-2 and S21-3.

Martin Company had the following costs:

Units produced 320 units Direct materials $ 71 per unit Direct labor 40 per unit Variable manufacturing overhead 13 per unit Fixed manufacturing overhead 7,360 per year Variable selling and administrative costs 22 per unit

Fixed selling and administrative costs 1,920 per year

Explain how the sales mix can affect the profitability of a company.
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