The income of a company for a year on a variable costing basis is $85 000 and on an absorption costing basis is $73 000. Fixed costs per unit were the same in both the prior and current year ($1.20 per unit). What was the change in inventory over the year?
A) Decrease of 10 000 units
B) Increase of 10 000 units
C) Increase of 12 000 units
D) None of the given answers

Question

Quizplus · Accepted Answer

The difference in income between variable and absorption costing is due to fixed costs in inventory. The $12,000 difference ($85,000 - $73,000) divided by the fixed cost per unit ($1.20) indicates a decrease of 10,000 units in inventory.

The Income of a Company for a Year on a Variable