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Absorption Costing Variable Costing: Finished - Goods Ending Inventory Amount of Declined

In year 2, the amount of declined finished goods inventory was $10,500 under absorption costing and $3,500 under variable costing, a difference of $7,000. This $7,000 difference also appeared as a lower net operating income in absorption costing compared to variable costing. Under absorption costing, $7,000 of inventoried fixed manufacturing overhead from year 1 was expensed in year 2, whereas under variable costing this amount had already been expensed in year 1.

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44 views1 page

Absorption Costing Variable Costing: Finished - Goods Ending Inventory Amount of Declined

In year 2, the amount of declined finished goods inventory was $10,500 under absorption costing and $3,500 under variable costing, a difference of $7,000. This $7,000 difference also appeared as a lower net operating income in absorption costing compared to variable costing. Under absorption costing, $7,000 of inventoried fixed manufacturing overhead from year 1 was expensed in year 2, whereas under variable costing this amount had already been expensed in year 1.

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Wolf's Rain
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Case 8-33: 4. Ending inventory = unit of product cost* No.

inventory
Amount of declined inventory = ending inventory YEAR 1 ending inventory YEAR 2
Unit of product cost
Absorption costing

(DM+DL+ Full. MOH)/ No.


product
Variable costing
(DM+DL+ Variable. MOH)/No.
product
The amount of decline inventory

Absorption costing
Variable costing

(21,000 + 42,000)/3000 = $21


21,000/3,000 = $7

Finished - goods Ending inventory


Year 1
Year 2
$10,500
$0
$3,500
0

Amount of declined
$10,500
$3,500

5.

Absorption costing
Variable costing
Difference

Absorption costing
Variable costing
Difference
Analysis:

Amount of decline finished goods inventory


in YEAR 2
$10,500
3,500
$7,000

Net operate income in YEAR 2


$13,500
20,500
$(7,000)

In YEAR 2, sold units > produced units.

Absorption costing, $7,000 of inventoried fixed MOH was recorded an expense during
Year 2.
Meanwhile variable costing, this fixed MOH had been recorded an expense during Year
1.

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