Stiller Corporation incurred fixed manufacturing costs of $24,000 during 2015. Other information for 2015 includes:
The budgeted denominator level is 2,000 units.
Units produced total 1,500 units.
Units sold total 1,200 units.
Beginning inventory was zero.
The company uses absorption costing and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold.
-Operating income using absorption costing will be ________ than operating income if using variable costing.
A) $9,600 higher
B) $4,800 lower
C) $3,600 higher
D) $14,400 lower

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing costs are spread over the budgeted denominator level (2,000 units), resulting in a fixed cost per unit of $12 ($24,000/2,000). Since 1,500 units were produced, $18,000 ($12 x 1,500) of fixed costs are allocated to inventory, leaving $6,000 ($24,000 - $18,000) in cost of goods sold. Under variable costing, all $24,000 of fixed costs are expensed. The difference in operating income is $6,000 - $2,400 (fixed cost in ending inventory of 300 units) = $3,600 higher under absorption costing.

Stiller Corporation Incurred Fixed Manufacturing Costs of $24,000 During 2015