Zintec has fixed manufacturing costs of $400,000 and produces 10,000 and sells 8,000 wagons during the year.There is no beginning inventory.Which of the following conclusions can be drawn?
A)Variable costing income will be $80,000 higher than full costing income.
B)Full costing income will be $80,000 higher than variable costing income.
C)Variable and full costing income will be the same.
D)There is not enough information to draw a conclusion.

Question

Quizplus · Accepted Answer

To calculate variable and full costing income, we need to know the variable cost per unit. Since this information is not given, we cannot calculate the two types of income. However, we can use the information given to eliminate some answer choices.

If 8,000 wagons were sold, then 2,000 wagons were not sold (10,000 - 8,000 = 2,000). If all fixed costs are expensed in the period they are incurred, then the fixed cost per unit for the 8,000 wagons sold is $50 ($400,000 / 8,000 = $50).

Using this information, we can calculate full costing income as follows:

Revenue from 8,000 wagons sold = 8,000 x selling price per unit
Variable costs for 8,000 wagons sold = 8,000 x variable cost per unit
Fixed costs for 8,000 wagons sold = 8,000 x $50
Full costing income = Revenue - variable costs - fixed costs

We cannot calculate variable costing income without knowing the variable cost per unit. However, we know that variable costing income will always be higher than full costing income when production is greater than sales, and lower when production is less than sales.

In this case, production is greater than sales (10,000 > 8,000), so variable costing income will be higher than full costing income. Therefore, answer choice A is incorrect.

We can eliminate answer choice C because variable and full costing income would only be the same if there were no fixed costs.

The correct answer is answer choice B, because variable costing income will be higher than full costing income when production is greater than sales.

Zintec Has Fixed Manufacturing Costs of $400,000 and Produces 10,000