Question

The fixed overhead budgeted for Ranier Industries at an expected capacity of 500,000 units is $1,500,000.
Variable costing is internally, and the net income is adjusted to an absorption costing net income
at year-end. Data collected over the last three years show the following:
					First Year	Second Year	Third Year
Units produced					502,000	498,000	496,000
Units sold					496,000	503,000	496,000
Net income - (variable costing)					$     500,000	$        521,000	$   497,000

Determine the adjustment each year to convert the variable costing income to absorption costing net income for each year.

	Amount	Units	Rate
Budgeted fixed overhead per unit	*	*	*

	First Year	Second Year	Third Year
Net income (variable costing)	*	*	*
Adjustment to absorption costing:
First Year	*
Second Year		*
Third Year			*
Absorption costing net income	*	*	*

* =cells that need answers

Answer 1

The only difference between variable costing and absorption costing is that fixed manufacturing overheads become a part of goods while it is charged as a period cost under variable costing

Hence, the answer is as follows:

	Amount	Units	Rate
Budgeted fixed overhead per unit	1,500,000	500,000	3
	First Year	Second Year	Third Year
Net income (variable costing)	500000	521000	497000
Adjustment to absorption costing:
First Year	18,000
Second Year		(15,000)
Third Year			0.00
Absorption costing net income	518,000	506,000	497,000
* =cells that need answers

B 4 Second Year 498000 503000 =C5-C6 521,000 Third Year 496000 496000 =D5-D6 $ 497,000 А 1 he fixed overhead budgeted for Ranier Industries at an expected capaci 2 Variable costing is internally, and the net income is adjusted to an absor 3 at year-end. Data collected over the last three years show the following First Year 5 Units produced 502000 6 Units sold 496000 7 Difference in units =B5-B6 8 Net income - (variable costing) $ 500,000 9 . 10 11 Amount 12 Budgeted fixed overhead per unit 1500000 13 First Year 14 Net income (variable costing) 500000 15 Adjustment to absorption costing: 16 First Year =6000*D12 17 Second Year 18 Third Year 19 Absorption costing net income =B14+B16 20 * =cells that need answers Units 500000 Second Year 521000 Rate =B12/C12 Third Year 497000 =-5000*D12 =0*D12 D14+D18 =C14+C17