Question

Requirement 2:

Answer 1

Answer:

Requirement 2

a) Net Operating Income (Loss) for year 1 under absorption costing = 110,600

b) Net Operating Income (Loss) for year 2 under absorption costing = 257,600

c) Net Operating Income (Loss) for year 1 under variable costing = 238,200

d) Net Operating Income (Loss) for year 2 under variable costing = 385,200

e) The cost of goods sold is always less under variable costing than under absorption costing.

Explanation:

a) Absorption Costing, also called full absorption costing, capture all costs associated with manufacturing a particular product, such that the direct and indirect costs, such as direct materials, direct labor, rent, and insurance, are fully accounted for using this managerial accounting method.

b) Variable Costing is a managerial accounting technique that assigns variable costs to inventory, so that all period (fixed overhead) costs are charged to expenses in the period incurred, while only direct materials, direct labor, and variable manufacturing overhead costs are assigned to inventory.

Download xlsx