Clayton Company produces a single product.Last year,the company's variable production costs totaled $8,000 and its fixed manufacturing overhead costs totaled $4,800.The company produced 4,000 units during the year and sold 3,600 units.Assuming no units in the beginning inventory:
A)under variable costing,the units in ending inventory will be costed at $3.20 each.
B)the net operating income under absorption costing for the year will be $480 lower than net operating income under variable costing.
C)the ending inventory under variable costing will be $480 lower than the ending inventory under absorption costing.
D)the net operating income under absorption costing for the year will be $800 lower than net operating income under variable costing.

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead is included in the cost of ending inventory, while under variable costing, it is not. The fixed manufacturing overhead per unit is $4,800 / 4,000 units = $1.20. The ending inventory of 400 units will have $480 more in costs under absorption costing (400 units x $1.20) compared to variable costing.

Clayton Company Produces a Single Product