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konstantin123 [22]
3 years ago
10

Galen Company income under variable costing is $1,050,000. Fixed production costs in ending inventory are $300,000 and $250,000

in beginning inventory. What is Galen Company's income under absorption costing?
Business
1 answer:
lana [24]3 years ago
7 0

Answer:

Income under absorption costing = $1,100,000

Explanation:

Marginal and absorption costing are two different methods to deal with fixed production overheads and and decide whether or not they are included in valuation of inventory.

<u>Valuation of inventory</u>

Opening and closing inventory are valued at variable cost under variable costing.  Whereas in absorption costing, opening and closing inventory are valued at full production cost (including fixed production overheads).

<u>Reconciling profits reported under two different methods</u>

When inventory levels increase or decrease during a period then profits will differ under absorption and marginal costing because of fixed production cost.

Net Income under absorption costing = Income under variable costing + fixed production cost in ending inventory – fixed production cost in beginning inventory

= $1,050,000 + $300,000 - $250,000

= $1,100,000

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2 years ago
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3 years ago
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