Columbia Company's variable costing income statement for November appears below:
-
The pound value of the company's stock on November 30 under the absorption costing method would be:

A)£54,000.
B)£66,000.
C)£78,000.
D)£81,000.

Question

Columbia Company's variable costing income statement for November appears below:
-
The pound value of the company's stock on November 30 under the absorption costing method would be:

A)£54,000. 
B)£66,000. 
C)£78,000. 
D)£81,000.

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing costs are included in the valuation of inventory. The difference between variable costing and absorption costing net incomes is due to the difference in the treatment of fixed manufacturing costs. In this case, the difference in net income between the two costing methods is £12,000 (£78,000 - £66,000). This difference is exactly equal to the amount of fixed manufacturing overhead incurred during November. Therefore, the pound value of the company's stock on November 30 under the absorption costing method would include the fixed manufacturing overhead of £66,000 plus the difference in net income of £12,000, yielding a total of £78,000.

Columbia Company's Variable Costing Income Statement for November Appears Below