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Absorpsion vs Variable Costing

# Absorpsion vs Variable Costing - JulioGarcia...

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Julio Garcia Tuesdays @ 6:00pm Text Problem 9-33 Comparison of Variable and Absorption Coating Income Statement for 2003 using Variable Costing: Sales 25,000,000 x \$2.00  50,000,000.00  Production Costs: Variable 30,000,000 x \$1.00  30,000,000.00  Fixed  8,400,000.00   38,400,000.00  Ending Inventory 5,000,000 units  5,000,000.00  Cost of Goods Sold  33,400,000.00  Gross Margin  16,600,000.00  Marketing, Distribution, Customer Service costs: Variable   12,500,000.00  Fixed  4,100,000.00   16,600,000.00  Operating Income 0.00 Absorption Costing: Sales 20,000,000 x \$2.00  40,000,000.00  Production Costs: Variable 15,000,000 x \$1.00  15,000,000.00  Fixed  8,400,000.00   23,400,000.00  Ending Inventory 5,000,000 units  6,400,000.00  Cost of Goods Sold  29,800,000.00  Gross Margin  10,200,000.00  Marketing, Distribution, Customer Service costs: Variable   10,000,000.00  1- As a member of the board, I would raise the problems that surface when using Absorption Costing in order to measure Net Income. I wo members that the use of absorption costing was the only reason the new president's plan was able to generate a net income of \$1,400,00 recognition of the fixed costs allocated to the remaining 5,000,000 units of Inventory, the new president simply moved \$1,400,000 of cost o Balance Sheet. If Variable Costing had been used instead, the company would have had no profit. The new president's decision of "tacklin

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