The following table shows inventory balances, in units, for years 1, 2 and 3. Total fixed costs were $20,000 for each of the last three years. The units in year 1 beginning inventory were based on production of 500 units.
Required:

For each year, calculate the difference between absorption costing and variable costing operating income. Indicate which costing system has the highest income each year. Assume the LIFO method is used in year three.

Question

The following table shows inventory balances, in units, for years 1, 2 and 3. Total fixed costs were $20,000 for each of the last three years. The units in year 1 beginning inventory were based on production of 500 units. 
Required:

For each year, calculate the difference between absorption costing and variable costing operating income. Indicate which costing system has the highest income each year. Assume the LIFO method is used in year three.

Quizplus · Accepted Answer

The Answer of The following table shows inventory balances, in units, for years 1, 2 and 3. Total fixed costs were $20,000 for each of the last three years. The units in year 1 beginning inventory were based on production of 500 units. 
Required:

For each year, calculate the difference between absorption costing and variable costing operating income. Indicate which costing system has the highest income each year. Assume the LIFO method is used in year three.

The Following Table Shows Inventory Balances, in Units, for Years