Waterloo Skyline experienced the following costs in 2014: $\begin{array}{lr}
\text { Direct materials } & \$ 3.15 \text { per unit } \
\text { Direct labor } & \$ 2.80 \text { per unit } \
\text { Variable manufacturing overhead } & \$ 1.45 \text { per unit } \
\text { Fixed manufacturing overhead } & \$ 12.60 \text { per unit }
\end{array}$ There was no beginning inventory. During the year, the company sold 190,000 units. If net income using full and variable costing was $939,020 and $905,000, respectively, how many units did the company produce in 2014?

Question

Quizplus · Accepted Answer

The difference in net income between full and variable costing is due to fixed manufacturing overhead. The difference is $34,020 ($939,020 - $905,000), which is the fixed overhead cost deferred in inventory. Dividing this by the fixed overhead per unit ($12.60) gives 2,700 units. Adding these to the units sold (190,000) gives 192,700 units produced.

Waterloo Skyline Experienced the Following Costs in 2014 There Was No Beginning Inventory