Que. No. 1a. When production is greater than sales which method’s net operating income will be higher, AC or VC and why? Be precise and to the point in writing the answer. Que. No. 1b. Sharp Company manufactures a product for which the following data and information related to inventory is available. The company uses variable costing for internal management reports and absorption costing for external reports to the shareholders, creditors, and the government. The company has provided the following data:Year-1Year-2Year-3Inventories:Beginning (units)200160180Ending (units)160180220Variable Costing net operating income$1,080,400$1,032,400$996,400The company’s fixed manufacturing overhead per unit was constant at $650 for all the three years.Required: 1. Determine each year’s absorption costing net operating income. Present your answer in the form of a reconciliation report. (you must show all calculations)2. In year four, the company’s variable costing net operating income was $984,400 and its absorption costing net operating income was $1,012,400. Did Inventories increase or decrease during year four? Why? How much fixed manufacturing overhead cost was deferred or released from inventory during year four?3. What is the ending inventory in units in the year 4? Show with calculation.
Que. No. 1a. When production is greater than sales which method’s net operating income will be higher, AC or VC and why? Be precise and to the point in writing the answer.
Que. No. 1b. Sharp Company manufactures a product for which the following data and information related to inventory is available. The company uses variable costing for internal management reports and absorption costing for external reports to the shareholders, creditors, and the government. The company has provided the following data:
Year-1
Year-2
Year-3
Inventories:
Beginning (units)
200
160
180
Ending (units)
160
180
220
Variable Costing net operating income
$1,080,400
$1,032,400
$996,400
The company’s fixed manufacturing
Required:
1. Determine each year’s absorption costing net operating income. Present your answer in the form of a reconciliation report. (you must show all calculations)
2. In year four, the company’s variable costing net operating income was $984,400 and its absorption costing net operating income was $1,012,400. Did Inventories increase or decrease during year four? Why? How much fixed
3. What is the ending inventory in units in the year 4? Show with calculation.
Absorption Costing
A managerial accounting technique is absorption costing. The absorption costing method differs from other costing methods in that it takes both variable and fixed overhead costs into account when determining product costs. Due to the fact that it takes all costs into account when determining unit costs, this method is also known as the complete costing method.
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