Which formula reconciles the difference between absorption and variable-costing income?
Which formula reconciles the difference between absorption and variable-costing income?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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(Answer questions 18-20 based on the information given below) The following data were provided by Trusty Corp., which produces a single product:
| Year 1 | Year 2 | Year 3 | |
| Units Produced | 6000 | 7000 | 5000 |
| Units Sold | 6000 | 6000 | 6000 |
18. If variable costing is in use, one would expect:
a. net operating income to be erratic over the three-year period.
b. net operating income to be the same for each year.
c. the break-even point to be lower in Year 2 than in Year 3.
d. net operating income to be higher in Year 2 than in Year 1.
19 .Taking the three years together, one would expect total net operating income to be:
a. the same under either absorption or variable costing
b.higher under absorption costing than under variable costing
c. lower under absorption costing than under variable costing
d. none of the above
20.
Which formula reconciles the difference between absorption and variable-costing income?
a. Change in inventory units / predetermined variable-overhead rate per unit.
b.Change in inventory units x predetermined fixed-overhead rate per unit
c. Change in inventory units / predetermined fixed-overhead rate per unit.
d. Change in net income x fixed-overhead rate per unit
e. Change in inventory units x predetermined variable-overhead rate per unit.
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