Answer:
Absorption costing income is $29,500 higher than variable costing.
Explanation:
<u>The absorption </u>costing method includes all costs related to production, both fixed and variable. The unit product cost is calculated using direct material, direct labor, and total unitary manufacturing overhead.
<u>The variable costing</u> method incorporates all variable production costs (direct material, direct labor, and variable overhead).
<u>Absorption costing:</u>
Unitary production cost= (80 + 50 + 10) + (295,000 / 10,000)= $169.5
Sales= 9,000*200= 1,800,000
COGS= 9,000*169.5= (1,525,500)
Gross profit= 274,500
Sales expense= (9,000*8)= (72,000)
Net income= $202,500
<u>Variable costing:</u>
Unitary production cost= 140
Sales= 1,800,000
Total variable cost= (140 + 8)*9,000= (1,332,000)
Total contribution margin= 468,000
Fixed manufacturing overhead= (295,000)
Net operating income= $173,000
Difference= 202,500 - 173,000= $29,500
Absorption costing income is $29,500 higher than variable costing.
