The following is a side-by-side comparison of variable and absorption costing income statements when 10,000 units have been manufactured and 15,000 units have been sold. Variable Costing Income Statement Sales $750,000 15,000 x $50 Variable cost of goods sold 375,000 15,000 x $25 Manufacturing margin $375,000 Variable selling and administrative expenses 75,000 15,000 x $5 Contribution margin $300,000 Fixed costs: Fixed manufacturing costs $150,000 Fixed selling and administrative expenses 50,000 Total fixed costs 200,000 Operating income $100,000 Absorption Costing Income Statement Sales $750,000 15,000 x $50 • Cost of goods sold equals the 15,000 units sold times the sum of the variable manufacturing cost per unit of $25 plus the fixed manufacturing cost per unit of $15 ($150,000 total fixed cost / 10,000 units produced.) Cost of goods sold 575,000 5,000 x ($25 + $10) + 10,000 x ($25 + $15) Gross profit $175,000 Selling and administrative expenses 125,000 (15,000 x $5) + 50,000 Operating income $50,000 What is unchanged at 10,000 vs. 15,000 units manufactured: When more units are sold than are manufactured, there are fewer units in ending inventory than there were in beginning inventory. Some of the beginning inventory had to be sold to fulfill the order for more than what was produced. In this case, 5,000 of
the units sold came from beginning inventory. Operating income under variable costing is higher than under absorption costing when inventory decreases. This is because under variable costing the fixed factory overhead that is expensed off during the period is only for units produced, even if more units are sold than were produced. Under absorption costing, the fixed overhead is included in the higher number of units sold, resulting in higher overall expenses and therefore lower operating income.
 by Sara Naeem , Trainee Finance officer , Wah Brass Mill Option A- greater than variable costing net income.................. The ending inventory figures under the variable costing and absorption costing methods are different. Under variable costing, only the variable manufacturing costs are included in inventory. Under absorption costing, both variable and fixed manufacturing costs are included in inventory. Answer option A.>>>>>>>greater than variable costing net income Answer A is the right answer . It will be greater . (A) is the Correct Ans. Greater than net income under variable costing. Absorption costing could result in an increase in net income if a company increases its production and its inventory. This occurs because fixed manufacturing overhead is allocated to more production units—some of which will be reported as inventory A- greater than variable costing net income by Mohammed Shahid Ullah , Executive Director (Finance) ,
Coal Power Generation Company Bangladesh Limited Production units and sales units are not any relation between two methods of calculating net income. by
Anas Dawah , Senior Internal Auditor , Talal Abu-Ghazaleh Global (TAGI) A- Absorption costing income higher than Variable Costing income by Allen Ambo , Finance Manager , Qatar Living for Trade & IT Investment OPTION A This is because some of the fixed production over heads that had been absorbed in the inventory will be carried forward as ending inventory and reported in the balance sheet as a current asset. Hence the cost of sales will have less of some fixed production over head costs and a lower reported profit for the period end by Malik Saleem Iqbal , Assistant Finance Manager , Ali Zaid Al-Quraishi & Brothers Co LTD Answer is A, it will be greater the correct answer is (A) ... greater than Popular SearchesWhat happens when production is greater than sales?Explanation: If production exceeds sales, the profit under absorption costing is higher as compared to variable costing. This is due to the deferral of fixed manufacturing overhead costs to the next period in ending inventory, leading to reduced cost of goods sold for the current period and hence a higher profit.
When production is greater than sales What is the relation between the absorption costing income and variable costing income?When production is greater than sales, i.e. ending inventory is greater than the beginning inventory, the operating income under absorption costing is greater. 3. When production is less than sales, i.e. ending inventory is less than the beginning inventory, operating income under variable costing is greater.
Why is absorption costing higher than variable costing?When units produced are greater than units sold, i.e., units in inventory increase, absorption income is greater than variable costing income because absorption costing defers a portion of fixed manufacturing costs in finished goods inventory.
What is the difference between absorption costing income and variable costing income?Absorption costing entails allocating fixed overhead costs to all units produced for an accounting period. Variable costing includes all of the variable direct costs in COGS but excludes direct, fixed overhead costs.
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When production is greater than sales absorption income is greater than variable costing income?
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