Question

9 eBook Print Marked out of Question 1 Not complete 27.00 P Flag question ha Es It Support OY Variable and Absorption Costing Chandler Company sells its product for $120 per unit. Variable manufacturing costs per unit are $49, and fixed manufacturing costs at the normall operating level of 12,000 units are $240,000. Variable selling expenses are $21 per unit sold. Fixed administrative expenses total $104,000, Chandler had no beginning inventory in 2016. During 2016, the company produced 12,000 units and sold 9,000. Would net income for Chandler Company in 2016 be higher if calculated using variable costing or using absorption costing? Calculate reported income using each method

Answer 1

Solutions:

Marginal Costing
	Units	Price per Unit		Amount
Sales Revenue	9000	120		1080000
Less: Marginal Cost of Sales
Opening Stock	-	-	-
Production Cost	12000	49	588000
Less: Closing Stock	3000	49	147000
Marginal Cost of Sales				- 441000
Gross Margin				639000
Less: Variable Selling Expenses	9000	21		189000
Contribution Margin				450000
Less: Fixed Costs
Manufacturing Costs	240000
Administrative Expenses	104000			344000
Net Income (Marginal Costing )				106000

Absorption Costing
	Units	Price per Unit		Amount
Sales Revenue	9000	120		1080000
Less:
Opening Stock	-	-	-
Production Cost
Variable Manufacturing Cost	12000	49	588000
Fixed Manufacturing Cost	12000	20	240000
Total Production Cost			828000
Less: Closing Stock	3000	69	207000
Absorption Cost of Production			621000
Add:
Variable Selling Expenses	9000	21	189000
Fixed Administrative Expense			104000
Absorption Cost of Sales			914000	- 914000
Net Income (Absorption Costing)				166000

The Net income is more under absorption costing method.