Sinister Snake Oil Company produces and sells a single product. Reported operating income for the first three years of operations under absorption and variable costing are reported below. $$\begin{array} { l l l }
& \text { Variable Costing } & \text { Absorption Costing } \
\text { Year 1 } & \$ 50,000 & \$ 40,000 \
\text { Year 2 } & \$ 60,000 & \$ 60,000 \
\text { Year 3 } & \$ 70,000 & \$ 80,000
\end{array}$$ Standard production costs per unit, sales prices, absorption rates, and expected volume levels were the same each year. There were no underapplied or overapplied overhead costs and no variances in any year.
Required:
a. In what year did units produced equal units sold?
b. In what year did units produced exceed units sold?
c. What is the dollar amount of the ending inventory in Year 3 if absorption costing is used?
d. What is the difference between "units produced" and "units sold" in Year 3 if the absorption costing fixed- manufacturing overhead application rate is $2 per unit?

Question

Sinister Snake Oil Company produces and sells a single product. Reported operating income for the first three years of operations under absorption and variable costing are reported below. $$\begin{array} { l l l } 
& \text { Variable Costing } & \text { Absorption Costing } \
\text { Year 1 } & \$ 50,000 & \$ 40,000 \
\text { Year 2 } & \$ 60,000 & \$ 60,000 \
\text { Year 3 } & \$ 70,000 & \$ 80,000
\end{array}$$ Standard production costs per unit, sales prices, absorption rates, and expected volume levels were the same each year. There were no underapplied or overapplied overhead costs and no variances in any year.
Required:
a. In what year did units produced equal units sold?
b. In what year did units produced exceed units sold?
c. What is the dollar amount of the ending inventory in Year 3 if absorption costing is used?
d. What is the difference between "units produced" and "units sold" in Year 3 if the absorption costing fixed- manufacturing overhead application rate is $2 per unit?

Quizplus · Accepted Answer

The Answer of Sinister Snake Oil Company produces and sells a single product. Reported operating income for the first three years of operations under absorption and variable costing are reported below. $$\begin{array} { l l l } 
& \text { Variable Costing } & \text { Absorption Costing } \
\text { Year 1 } & \$ 50,000 & \$ 40,000 \
\text { Year 2 } & \$ 60,000 & \$ 60,000 \
\text { Year 3 } & \$ 70,000 & \$ 80,000
\end{array}$$ Standard production costs per unit, sales prices, absorption rates, and expected volume levels were the same each year. There were no underapplied or overapplied overhead costs and no variances in any year.
Required:
a. In what year did units produced equal units sold?
b. In what year did units produced exceed units sold?
c. What is the dollar amount of the ending inventory in Year 3 if absorption costing is used?
d. What is the difference between "units produced" and "units sold" in Year 3 if the absorption costing fixed- manufacturing overhead application rate is $2 per unit?

Sinister Snake Oil Company Produces and Sells a Single Product