Bianca Bicycle Company manufactures mountain bikes with a variable cost of $200. The bicycles sell for $350 each. Budgeted fixed manufacturing overhead for the most recent year was $2,200,000. Planned and actual production for the year were the same.
Required:
Under each of the following conditions, state ( a ) whether income is higher under variable or absorption costing and ( b ) the amount of the difference in reported income under the two methods. Treat each condition as an independent case.
1. Production ........................................... 20,000 units
Sales ........................................................ 23,000 units
2. Production ........................................... 10,000 units
Sales ....................................................... 1 0,000 units
3. Production ........................................... 11 ,000 units
Sales ................................................... 9,000 units