REQ 2

The operating income using the absorption cost method is (GREATER than/LESS than)

the operating income under the variable cost method. The reason for this is because under absorption costing, the 1,000 cases in beginning Finished Goods Inventory included _____ in (fixed manufacturing costs / fixed selling and administrative costs / variable manufacturing costs / variable selling and administrative costs) that were not included in the inventory under the variable cost method.

In May, ExerAde produced 13,000 cases of powdered drink mix and sold 14,000 cases, of which 1,000 were produced in April. The total April production was 10,000. The sales price was $30, variable costs were $11 per case ($8 manufacturing and $3 selling and administrative), and total fixed costs were $100,000 ($91,000 manufacturing and $9,000 selling and administrative). Exerade's May income statement using variable costing follows: (Click the icon to view the variable costing Income statement.) Read the resulrements Reference 420,000 ExerAde Income Statement (Variable Coating) Month Ended May 31 Net Sales Revenue S Variable Costs: Variable Manufacturing Overhead S 112,000 Variable Selling and Administrative Costs 42,000 Contribution Margin Fixed Costs: Fixed Manufacturing Overhead 91,000 9,000 Fixed Selling and Administrativo Costs Operating Income 154,000 Requirement 1. Prepare the May income statement using absorption costing. Exer Ade Income Statement (Absorption Costing) Month Ended May 31 Net Sales Revenue $ 420,000 Cost of Goods Sold: Variable Cost of Goods Sold $ 112,000 Fixed Cost of Goods Sold 100,100 212.100 Gross Profit 207.900 Selling and Administrative Costs: Variable Selling and Administrative Costs 42,000 Fixed Selling and Administrative Costs 9,000 51,000 Operating Income $ 156,900 266,000 100.000 S 165,000 Print Done Requirement 2. Is operating income using absorption costing higher or lower than variable costing income? Explain why, The operating income using the absorption cost method is the operating income under the variable cost method. The reason for this is because under absorption costing, the 1,000 cases in beginning Finished Goods Inventory included in that were not included in the inventory under the variable cost method