Bella, Inc. has operated for 2 years. During that time it produced 1,000 units in year 1 and 800 in year 2, while sales were 800 units in year 1 and 900 in year 2. Variable production costs were $8 per unit during both years. The absorption costing income statements for these 2 years were: Year 1 Year 2
Sales $16,000 $18,000
Less cost of goods sold:
Beginning inventory $ 0 $ 2,200
Product costs 11,000 9,400
Ending inventory (2,200)8,800 (1,175)10,425
Gross profit 7,200 7,575
Less operating expenses:
Variable 1,200 1,350
Fixed 5,000 6,200 5,000 6,350
Operating income $ 1,000 $ 1,225
Cost of goods sold for year 1 using variable costing would be:

Question

Quizplus · Accepted Answer

Under variable costing, only variable production costs are included in cost of goods sold. Therefore, the cost of goods sold for year 1 would be calculated as follows:

Cost of goods sold = Beginning inventory (0) + Variable production costs (1,000 units x $8 per unit) - Ending inventory (800 units x $8 per unit)

Cost of goods sold = $0 + $8,000 - $6,400

Cost of goods sold = $1,600 - $1,200

Cost of goods sold = $400

Therefore, the correct answer is A) $6,400.