Answer:
When there is no change in the beginning and ending units of inventory i.e the units sold are equal to the units produced,the income under variable and absorption costing remains the same which is the condition in the given question.
Explanation:
If we have 80,000 units produced and sold then the income under both methods will be the same.
Manta Ray Company
Income Statement Variable Costing
Sales $40*80,000= $ 3200,000
Variable Costs $ 31*80,000= $ 2480,000
Contribution Margin $ 720,000
Less Fixed Costs $ $712,800
Gross Profit $ 7200
Manta Ray Company
Income Statement Absorption Costing
Sales $40*80,000= $ 3200,000
Variable Costs $ 31*80,000= $ 2480,000
Fixed Costs $ $712,800
Gross Profit $ 7200
When there is no change in the beginning and ending units of inventory i.e the units sold are equal to the units produced,the income under variable and absorption costing remains the same which is the condition in the given question.
If there is an increase in the inventory units ( ie. production is less than the Sales) the fixed manufacturing overhead cost is released from inventory and deducted from variable income.
Similarly when the inventory units decrease ( ie. production is more than the Sales) the fixed manufacturing overhead cost is deferred from inventory and added to variable income.
