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7 March, 20:27

NorthEast Towers Company produces a single product. For the most recent year, the company's net operating income computed by the absorption costing method was $17,450, and its net operating income computed by the variable costing method was $15,259. The company's unit product cost was $45 under variable costing and $52 under absorption costing. If the ending inventory consisted of 948 units, the beginning inventory must have been:

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  1. 7 March, 22:05
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    1,261 units

    Explanation:

    To determine the Units of Beginning Inventory, prepare a Reconciliation of Absorption Costing Profit to Variable Costing Profit.

    Reconciliation of Absorption Costing Profit to Variable Costing Profit

    Absorption Costing Net Income $17,450

    Add Fixed Costs in Opening Stock (948 * ($52-$45)) $ 6,636

    Less Fixed Costs in Closing Stock Balancing Figure ($8,827)

    Variable Costing Net Income $15,259

    Units of Beginning Inventory = $8,827 / ($52-$45)

    = 1,261
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