Question

Doc Rowan Corporation sells one product, its waterproof hiking boot. It began operations in the current year and had an ending inventory of 8,500 units. The company sold 20,000 units throughout the year. Fixed manufacturing overhead is $5 per unit, and total manufacturing cost per unit is $20 (including fixed manufacturing overhead costs). What is the difference in net income between absorption and variable costing

Answer 1

Answer:

$42,500

Explanation:

Doc Rowan Corporation

Ending inventory x Fixed manufacturing overhead cost per unit

Therefore:

8,500 x $5= $42,500

The difference in net income between absorption and variable costing is that the ABSORPTION costing will report a $42,500 higher net income than VARIABLE costing due to the fact that a portion of the fixed manufacturing overhead costs are actually deferred in inventory.