Question

S&P Enterprises sold 10,000 units of inventory during a given period. The level of inventory of the manufactured product remained unchanged. The manufacturing costs were as follows: Variable Fixed Unit manufacturing costs of the period $11.00 $7.00 Unit operating expenses of the period 3.00 2.50 Which of the following statements is true?a. Net income will be the same under both variable and absorption costing. b. Net income under variable costing will be $45,000 less than net income under absorption costing c. Net income under absorption costing will be $40,000 more than under variable costing. d. The difference in net income cannot be determined.

Answer 1

Answer:

Option A Net income will be the same under both variable and absorption costing.

Explanation:

The condition here given is:

Production Units = Sales units

Now under such conditions their is no finished goods and all the fixed costs are absorbed in the units produced in the absorption costing which means all the fixed production costs are part of the cost of goods sold.

In variable costing system, the fixed costs are not absorbed in the units and deducted as period cost.

So this means no cost is left which is not deducted from the revenue and this gives us net income that is same amount when we either use variable costing or use absorption costing. But remember that this is only possible when the production units are equal to sales units.