Answer the following questions using the information below:
Jupiter Corporation incurred fixed manufacturing costs of $16,000 during 2015. Other information for 2015 includes:
The budgeted denominator level is 2,000 units.
Units produced total 2,200 units.
Units sold total 1,900 units.
Variable cost per unit is $4.
Beginning inventory is zero.
The fixed manufacturing cost rate is based on the budgeted denominator level.
-The operating income using variable costing will be ________ as compared to the operating income under absorption costing.
A) lower by $2,400
B) lower by $4,800
C) higher by $2,400
D) higher by $4,800

Question

Quizplus · Accepted Answer

Under variable costing, fixed manufacturing costs are expensed in the period incurred, while under absorption costing, they are capitalized as inventory and expensed as the inventory is sold. In this case, Jupiter Corporation produced 2,200 units but only sold 1,900 units. Therefore, under absorption costing, $16,000 of fixed manufacturing costs would be capitalized as inventory and $12,000 ($16,000 x 1,900 units / 2,200 units) would be expensed. Under variable costing, all $16,000 of fixed manufacturing costs would be expensed. Therefore, the operating income under variable costing would be lower by $4,800 ($16,000 - $12,000) as compared to the operating income under absorption costing.

Answer the Following Questions Using the Information Below