Round corporation had the following slogs and production for the past four years:
|Year 1||Year 2||Year 3||Year 4|
|Production in units||5,000||6,000||5,000||5,000|
|Sales in units||4,000||5,000||5,000||7,000|
Soling price per unit, the variable cost, per unit, and total forced cost are the same each year. There were no beginning inventories in Year. 1. Which of the following statements is correct?
a) Under wearable costing net operating income for year 3 and year, 4 would be the some.
b) Under variable costing, not operating income for year 2 and year 3 would be the some.
c) Absorption costing net income would exceed variable costing net income in Year 4.
d) Variable costing net income would exceed absorption costing net income in year 1.
Definition Of Variable Costing.
Variable costing is a method of costing that considers variable costs only such as direct material, direct labor, and variable manufacturing overhead while calculating the production cost. The distinctive feature of variable costing is that it ignores fixed cost and considers it as periodic cost.
Answer and Explanation:
Under Variable costing, net operating income for Year 2 and Year 3 would be the same. (Option a)
This is because the cost of goods sold and the sales will be the same for both years as in both years the same number of units are sold. Under variable costing only variable cost is considered for calculating the unit product cost. Also, there is no change in fixed overhead hence the net operating income will be the same.
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from Financial Accounting: Help and ReviewChapter 13 / Lesson 5