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Answer Situation 1: When Production is more than Sales: Under Variable Costing, Fixed Manufacturing overhead will be expensed Under Absorption Costing, a part of Fixed Manufacturing overhead will be deffered in Ending Inventory As a result of the above, Expenses will be higher under Variable costing and Net income will be lower under Variable costing Fixed Manufacturing overhead rate = Fixed Manufacturing overhead / No. of units Produced Fixed Manufacturing overhead rate $7.60 Difference in amountFixed manufacturing overhead rate No of units of Production () No.of units sold) $845,500 /111,250 units $7.60 (111,25o (- 108,750) - $19,000

Situation 2: When Production is less than Sales: Under Variable Costing, Fixed Manufacturing overhead will be expensed. Under Absorption Costing, a part of Fixed Manufacturing overhead will be released from opening inventory As a result of the above, Expenses will be higher under Absorption costing and Net income will be lower under Absorption costing Fixed Manufacturing overhead rate Fixed Manufacturing overhead/No. of units Produced Fixed Manufacturing overhead rate $8.90 Difference in amountFixed manufacturing overhead rate No of units sold (-) No. of units of production) $845,500 / 95,000 units $8.90 * (100,500 (-) 95,000) = $48,950 Situation 3: When Production equals Sales: When production equals Sales, Same Net income arises under both methods and hence there will be no difference in amount