Help as well **Inventory Level Increase Analysis**During a given period, the inventory level of a manufactured product has increased by 8,389 units. Below is the available data regarding unit costs:| | Variable | Fixed ||----------------------|----------|--------|| Unit Manufacturing Costs of the Period | $10.00 | $6.00 || Unit Operating Expenses of the Period | $3.00 | $5.00 |**Effect on Operating Income:**Using absorption costing instead of variable costing impacts operating income. The options for the effect are as follows:- a. $92,279 increase- b. $92,279 decrease- c. $50,334 decrease- d. $50,334 increase

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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**Inventory Level Increase Analysis**

During a given period, the inventory level of a manufactured product has increased by 8,389 units. Below is the available data regarding unit costs:

| | Variable | Fixed |
|----------------------|----------|--------|
| Unit Manufacturing Costs of the Period | $10.00 | $6.00 |
| Unit Operating Expenses of the Period | $3.00 | $5.00 |

**Effect on Operating Income:**

Using absorption costing instead of variable costing impacts operating income. The options for the effect are as follows:

- a. $92,279 increase
- b. $92,279 decrease
- c. $50,334 decrease
- d. $50,334 increase

Expert Solution

Step 1

Under absorption costing, fixed manufacturing costs are also included in the product costs.

Therefore,

If the finished goods inventory increases then fixed manufacturing costs assigned to the inventory are deferred and result in an increase in operating income. And

If the finished goods inventory decreases then fixed manufacturing costs assigned to the beginning inventory sold become part of the cost of goods sold and result in a decrease in operating income.