Yuvil corporation produces a single product. at the end of the company's first year of operations, 1,000 units of inventory remained on hand. its variable manufacturing overhead cost is $45 per unit and its fixed manufacturing overhead cost is $10 per unit. yuvil's absorption costing net operating income would be higher than its variable costing net operating income by:

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Aliya Serrano

21 April, 10:05

Yuvil corporation produces a single product. at the end of the company's first year of operations, 1,000 units of inventory remained on hand. its variable manufacturing overhead cost is $45 per unit and its fixed manufacturing overhead cost is $10 per unit. yuvil's absorption costing net operating income would be higher than its variable costing net operating income by:

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Grady Andrade · Answer 1

Under absorption costing the cost per unit of goods includes the element of fixed cost thus when goods are not sold a portion of fixed costs gets deferred to the next accounting period, thus as can be observed $10 of 1000 units has been deferred to the next period, hence the net profit under absorption costing will be $10000 ($10*1000) higher.

Under Variable costing the fixed cost for the period will be incurred in the same period as they are not included in the per unit cost.

Thus from the above observation absorption costing net operating income would be higher than its variable costing net operating income by $10000.