Ramon Company reported the following units of production and sales for June and July 2011: 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?

Question

Ramon Company reported the following units of production and sales for June and July 2011:  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?

Quizplus · Accepted Answer

Since the fixed manufacturing costs were the same for both months and the only difference between the two income figures is the inventory accounting method, the difference in net income of $10,000 must be attributed to the difference between absorption costing and variable costing. Therefore, net income for June using variable costing would be $40,000 - $10,000 = $30,000. However, the question is asking for the net income using variable costing, not the difference between absorption and variable costing. Therefore, the correct answer is $30,000 - $50,000 = $(20,000).

Ramon Company Reported the Following Units of Production and Sales