1. Silver Company produces a single product. Last year, the company's variable
production costs totaled $7,500 and its fixed manufacturing overhead costs totaled
$4,500. The company produced 3,000 units during the year and sold 2,400 units. There
were no units in the beginning inventory. Which of the following statements is true?
Under variable costing, the units in the ending inventory will be costed at $4 each.
The net operating income under absorption costing for the year will be $900 lower
than the net operating income under variable costing.
The ending inventory under variable costing will be $900 lower than the ending
inventory under absorption costing.
Under absorption costing, the units in ending inventory will be costed at $2.50
each.Answer the following questions using the information below:
2. Lee Company produces a single product. At the end of last year, the company had
30,000 units in its ending inventory. Lee's variable production costs are $10 per unit and
its fixed manufacturing overhead costs are $5 per unit every year. The company's net
operating income for the year was $12,000 higher under variable costing than under
absorption costing. Given these facts, the number of units of product in inventory at the
beginning of the year must have been:
Unit fixed manufacturing overhead
= Difference in net income
Change in inventory
Change in inventory = $5
Change in inventory = 2,400 units
Beginning inventory = 2,400 + 30,000 = 32,400 units
3. Ben Company produces a single product. Last year, the company's net operating
income under absorption costing was $4,400 lower than under variable costing. The
company sold 8,000 units during the year, and its variable costs were $8 per unit, of
which $3 was variable selling expense. Fixed manufacturing overhead was $1 per unit in
beginning inventory under absorption costing. How many units did the company produce
during the year?