Question

A manufacturer reports the information below for three recent years.

Answer 1

Answer:

Year 1

Fixed Overhead in ending inventory = (2,200 * $1.20) = $2,640

Year 2

Fixed Overhead in ending inventory = (1,700 * $1.20) = $2,040

Fixed overhead in beginning inventory = (2,200 * $1.20) = $2,640

Year 3

Fixed Overhead in ending inventory = (1,800 * $1.20) = $2,160

Fixed overhead in beginning inventory = (1,700 * $1.20) = $2,040

                     Absorption costing income

Particulars                                                    Year 1         Year 2       Year 3

Variable costing income                           $140,000     $146,400   $143,950

Fixed Overhead in ending inventory        $2,640        $2,040       $2,160

Fixed overhead in beginning inventory    $0               ($2,640)     ($2,040)

Absorption costing income                      $142,640   $145,800  $144,070