Reference no: EM132966370
Question - ExerAde produced 20,000 cases of powdered drink mix and sold 18,000 cases in April. The sales price was $25?, variable costs were $8 per case ?($6 manufacturing and $2 selling and? administrative), and total fixed costs were $85,000 ?($60,000 manufacturing overhead and $25,000 selling and? administrative). The company had no beginning Finished Goods Inventory. ExerAde calculated the cost per unit and the total cost of the 2,000 cases in Finished Goods Inventory as of April 30 using both the absorption and variable costing methods. The calculations are presented below.
Reference April 30 Absorption Costing: Variable manufacturing cost per case $6, Fixed manufacturing overhead per case 3, Total product cost per case 9, Number of cases in Finished Goods Inventory 2,000, Total cost of Finished Goods Inventory 18,000
Variable Costing: Variable manufacturing cost per case $6, Fixed manufacturing overhead per case 0, Total product cost per case 6, Number of cases in Finished Goods Inventory 2,000, Total cost of Finished Goods Inventory 12,000
Requirements -
1. Which costing method produces the highest operating income? Explain why.
2. Which costing method produces the highest April 30 balance in Finished Goods Inventory? Explain why.
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