A company with fixed manufacturing costs of $500,000 produces 100,000 units in 2014 and 125,000 units in 2015. The company sells 90,000 units each in both years. Other costs and selling price are unchanged for 2014 and 2015. Assume that there was no beginning inventory in 2014. Which of the following is true?

Question

Quizplus · Accepted Answer

Variable costing income is calculated as total revenue minus variable costs minus variable manufacturing costs. Since other costs and selling price are unchanged, variable manufacturing costs will be the same for both years. Therefore, variable costing income will be the same in 2015 and 2014. The dollar amount of ending inventory is not provided in the question, so it is unclear which year has a greater ending inventory. Choice D cannot be correct because A and B are not both true.

A Company with Fixed Manufacturing Costs of $500,000 Produces 100,000