For Consumer Lumber what would be the total difference between operating incomes under absorption costing and variable costing?

Question

Quizplus · Accepted Answer

The difference between operating incomes under absorption costing and variable costing is the change in the inventory valuation. Under absorption costing, all manufacturing costs, including fixed overhead costs, are included in the cost of goods sold. However, under variable costing, only variable manufacturing costs are included in the cost of goods sold. Therefore, when inventory levels increase or decrease, absorption costing and variable costing will result in different operating incomes. In this case, since Consumer Lumber's fixed overhead costs are $700,000 and the change in inventory levels is 50,000 board feet, the difference in operating incomes is:

$700,000 ÷ 100,000 board feet = $7 per board foot
$7 x 50,000 board feet = $350,000
$350,000 ÷ 10 = $35,000

Therefore, the total difference between operating incomes under absorption costing and variable costing is $35,000.

For Consumer Lumber What Would Be the Total Difference Between