Question

A manufacturer reports the information below for three recent years. Year 1 Year 2 Year 3 Variable costing income $ 124,000 $ 128,400 $ 132,950 Beginning finished goods inventory (units) 0 1,900 1,400 Ending finished goods inventory (units) 1,900 1,400 1,500 Fixed overhead per unit $ 3.90 $ 3.90 $ 3.90 Compute income for each of the three years using absorption costing. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

Based on the incomes and the values of the finished goods, the income for the past three years would be:

• Year 1 = $131,410
• Year 2 = $126,450
• Year 3 = $133,340

Income in year 1

This can be found by the formula:
= Variable income + Ending finished cost - Beginning finished cost

= 124,000 + (1,900 units x 3.90 fixed overhead per unit) - 0

= $131,410

Income in year 2

= Variable income + Ending finished cost - Beginning finished cost

= 128,400 + (3.90 x 1,400) - (1,900x 3.90)

= $126,450

Income in year 3

= Variable income + Ending finished cost - Beginning finished cost

= 132,950 + (1,500 x 3.90) - ( 3.90 x 1,400)

= $133,340

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