Question

Mill Corporation had the following unit costs for the recently concluded calendar year: Variable Fixed Manufacturing $8.00 $3.00 Non-manufacturing $2.00 $5.50 Inventory for Mill's sole product totaled 6,000 units on January 1 and 5,200 units on December 31. When compared to variable costing income, Mill's absorption costing income is Select one: g

Answer 1

Answer:

Lower of $2,400

Explanation:

In this question, we have to compare the total fixed manufacturing cost between the two methods which are shown below:

On January 1

= Number of units × fixed manufacturing cost

= 6,000 units × $3

= $18,000

On December 31

= Number of units × fixed manufacturing cost

= 5,200 units × $3

= $15,600

The difference between these two amounts would be $2,400 ($18,000 - $15,600)

In the variable costing, this cost should not be recognized in the income statement while in absorption costing, this cost should be recognized in the income statement as it is goes to the cost of goods sold as an expense.. So, the net income lower of $2,400