Exercise $8-24$ Difference in Operating Income under Absorption and Variable Costing $($L$08-1,8-4)$

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 operating income is higher under variable or absorption costing and $(b)$ the amount of the difference in reported operating income under the two methods. Treat each condition as an independent case.

Production Sales

$20,000$ units

Production $23,000$ units Sales $10,000$ units

Production $10,000$ units Sales $9,000$ units