Ramon Company reported the following units of production and sales for June and July 2011: $\begin{array}{lrr}&\text { Units }\\text { Month } & \text { Froduced } & \text { Sold} \
\text { June 2011 } & 100,000 & 90,000 \
\text { July 2011 } & 100,000 & 105,000
\end{array}$ Net income under absorption costing for June was £40,000; net income under variable costing for July was £50,000. Fixed manufacturing costs were £600,000 for each month. How much was net income for June using variable costing?
A)£40,000
B)£20,000
C)£(40,000)
D)£(20,000)

Question

Quizplus · Accepted Answer

Under variable costing, fixed manufacturing costs are expensed in the period incurred. In June, 10,000 units were produced but not sold, so £60,000 (10,000 units x £6 fixed cost per unit) of fixed costs are deferred in inventory under absorption costing. Therefore, net income under variable costing is £40,000 - £60,000 = £(20,000).

Ramon Company Reported the Following Units of Production and Sales