Home › ACCA › Management Accounting › Variable Costing Analysis › A manufacturer sells more units in the period th…
A manufacturer sells more units in the period than it produces. Which operating income figure is higher?
AVariable costing, because inventory has fallen
BAbsorption costing, because inventory has fallen
CVariable costing, because inventory has risen
DAbsorption costing, because inventory has risen
Answer & Solution
Correct answer: A. Variable costing, because inventory has fallen
1. Selling more than is produced draws units out of opening inventory, so inventory falls.
2. Under absorption costing those units carry fixed overhead from an earlier period, which is now released into cost of goods sold.
3. Absorption costing therefore charges more than one period of fixed overhead, and its income falls.
4. Variable costing charges only the fixed overhead of the current period, so its income is the higher of the two.
5. The reverse holds when production exceeds sales and inventory rises.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 6.4 Units Manufactured Less Than Units Sold_
Related questions
A hotel reports a contribution margin of $51,100 for the month against total fixed costs oA hotel records rooms revenue of $84,000 and total variable costs of $32,900 for the monthProjection 1 gives a contribution margin of $375,000 and Projection 6 gives $401,500. FixeFour sales staff report contribution margins of $14,700, $13,400, $22,100 and $17,400 on sProduct 1 has a contribution margin ratio of 38.0% and Product 2 has 55.0%, on sales of $1Sales are $320,000, variable cost of goods sold is $52,800 and variable selling expenses aSales stay at 15,000 units while production is 15,000, then 20,000, then 10,000 units. Wha15,000 units are sold at $50 each, cost of goods sold under absorption costing is $575,000