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Sales stay at 15,000 units while production is 15,000, then 20,000, then 10,000 units. What happens to operating income under variable costing?
AIt rises with each increase in units produced
BIt stays at $100,000 in all three scenarios
CIt falls when production drops to 10,000 units
DIt moves with the change in inventory balance
Answer & Solution
Correct answer: B. It stays at $100,000 in all three scenarios
1. Variable cost of goods sold is driven by units sold, which is 15,000 in every scenario.
2. Fixed manufacturing costs are charged as a flat $150,000 whatever the production volume.
3. Neither figure responds to a change in output, so the whole statement is unchanged.
4. Operating income stays at $100,000 across all three production levels.
5. Absorption costing is the method that moves, reporting $100,000, then $137,500, then $50,000.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 6.5 Analysis of Variable and Absorption Costing_
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