Ramon Company reported the following units of production and sales for June and July: Income under absorption costing for June was $40,000; income under variable costing for July was $50,000.Fixed costs were $600,000 for each month.

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How much was income for June using variable costing?
A) $40,000
B) $20,000
C) $(40,000)
D) $(20,000)

Question

Ramon Company reported the following units of production and sales for June and July: Income under absorption costing for June was $40,000; income under variable costing for July was $50,000.Fixed costs were $600,000 for each month.

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How much was income for June using variable costing?

- 
How much was income for June using variable costing?
A) $40,000 
B) $20,000 
C) $(40,000) 
D) $(20,000)

Quizplus · Accepted Answer

SUPPORTING CALCULATIONS:
Calculate the difference in income between costing methods by taking Fixed Cost per unit times the change in inventory:
($600,000 / 100,000) × 10,000 = $60,000
 
Absorption costing is higher by $60,000.Therefore, $40,000 less $60,000 equals a loss of $20,000.

Ramon Company Reported the Following Units of Production and Sales