Under absorption costing and variable costing

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Reference no: EM13866620

The jonas company sells its razors at 3 per unit. The company incurs fixed manufacturing overhead cost of 720,000 each year to support production of 1,800,000 so that the fixed manufacturing overhead cost per unit equals 0.40. Prepare a numerical reconciliation and explanation of the difference between operating income for each year under absorption costing and variable costing; Crtics have claimed that a widely used accounting system has led to undesirable buildups of inventory levels. A- Is variable costing or absorption costing more likely to lead to such buildups? Why? And what can be done to counteract undesirable inventory buildups?

2012 2013

sales 1,100 units 1,200 units

production 1,800 units 1,100 units

cost

variable manufacturing $720 $440

fixed manufacturing 720 720

variable operating(marketing) 1,300 1,200

fixed operating marketing 750 750

Reference no: EM13866620

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