Jupiter Corporation incurred fixed manufacturing costs of $18,000 during 2017.Other information for 2017 includes:
The budgeted denominator level is 2,400 units.
Units produced total 2,700 units.
Units sold total 1,600 units.
Variable cost per unit is $ \$ 4 $
Beginning inventory is zero.
The fixed manufacturing cost rate is based on the budgeted denominator level.
The operating income using variable costing will be ________ as compared to the operating income under absorption costing.(Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar. )
A)lower by $8,250.00
B)lower by $2,250.00
C)higher by $8,250.00
D)higher by $2,250.00

Question

Jupiter Corporation incurred fixed manufacturing costs of $18,000 during 2017.Other information for 2017 includes:
The budgeted denominator level is 2,400 units. 
Units produced total 2,700 units.
Units sold total 1,600 units.
Variable cost per unit is $ \$ 4 $
Beginning inventory is zero.
The fixed manufacturing cost rate is based on the budgeted denominator level.
The operating income using variable costing will be ________ as compared to the operating income under absorption costing.(Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar. )
A)lower by $8,250.00
B)lower by $2,250.00
C)higher by $8,250.00
D)higher by $2,250.00

Quizplus · Accepted Answer

Under variable costing, fixed manufacturing costs are expensed in the period incurred, while under absorption costing, they are capitalized as inventory and expensed as the inventory is sold. In this case, Jupiter Corporation incurred fixed manufacturing costs of $18,000, produced 2,700 units, and sold 1,600 units. Under variable costing, the fixed manufacturing costs would be expensed in 2017, resulting in an operating income of $18,000 - (2,700 units x $4 variable cost per unit) = $2,800. Under absorption costing, the fixed manufacturing costs would be capitalized as inventory and expensed as the inventory is sold. Since 1,600 units were sold, the fixed manufacturing costs would be expensed in the amount of $18,000 x (1,600 units / 2,700 units) = $10,740.80. This would result in an operating income of $18,000 - (2,700 units x $4 variable cost per unit) - $10,740.80 = $4,259.20. Therefore, the operating income using variable costing would be lower by $2,800 - $4,259.20 = $8,250.00 as compared to the operating income under absorption costing.

Jupiter Corporation Incurred Fixed Manufacturing Costs of $18,000 During 2017 $4 \$ 4 $4

Jupiter Corporation Incurred Fixed Manufacturing Costs of $18,000 During 2017 $\$ 4$