Answer:
Absorption Costing Income will be <em>greater than</em> Variable Costing Income by $52,500
Explanation:
Absorption Costing Income differ with Variable Costing Income when <u>Production</u> <em>does not</em> equal to <u>Sales</u>.This is because the <em>fixed overheads</em> are <em>deferred in closing inventory</em> under the Absorption Costing System.
Only when Production equals to Sales then Income under the two methods would be the same.
<u>a plan to produce 10,000 units</u>
Production (10,000 units) = Sales (10,000 units)
therefore Absorption Costing Income equals Variable Costing Income
<u>a plan to produce 15,000 units</u>
Production (15,000 units) > Sales (10,000 units)
therefore Absorption Costing Income does equals Variable Costing Income as fixed cost in Absorption costing are deferred in inventory (5,000) units.
Differnce = 5,000 units × ($157,500/ 15,000)
= 5,000 units × $10.50
= $52,500
Absorption Costing Income will be <em>greater than</em> Variable Costing Income by $52,500