Answer:
Variable costing principle uses variable cost alone while absorption costing uses all cost both fixed and variable that are related to the production
1)Variable costing
Income = $28,000,000
Cost of production - $9,600,000
Gross profit = 18,400,000
Admin & selling expenses =509,091
PBIT = 17,890,909
2)Absorption costing
Income - $28,000,000
Cost of production 18,400,000
Gross profit 9,600,000
Admin $ selling expenses 5,259,091
PBIT = 4,340,909
3)Reported income is identical under both variable and absorption costing when production is the same with sales and there is no opening finished good inventory . All costs including the fixed costs are absorbed into the cost of production
Explanation:
Direct material - $40/unit
Direct labor $60/unit
Variable overhead cost - $2,200,000
Fixed overhead cost - $8,800,000
Variable admin cost - $700,000
Fixed admin cost - $4,750,000
Unit produced - 110,000
Unit sold - 80,000
Selling price - $350
sales revenue - 80000*$350 - $28,000,000
Cost
Direct material = 80000* 40= $3,200,000
Direct labor = 80000*60 = $4,800,000
Variable overhead = 2200000/110000 * 80000 = $1,600,000
Fixed overhead = $8,800,000 =
Variable admin= 700000/110000 * 80000 = $509,091
Fixed admin = $ 4,750,000
Total cost = $23,659,091
