Absorption Statement Absomption costing does not distinguish between variable and fixed costs. All manufacturing costs are induded in the cost of goods sold. Under variable costing, the cost of goofs manufactured includes only variable manufacturing costs. This type of income staternent includes a camputation of manufacturing margin. Variable statement Under variabic costing, the coat of goods manufactured inctudes only variable manufacturing costs, This type of incame stateriant inciudes a competatian of Review the income statements on the Absorption statement and Variabie Statement, then compiete the following tabie. The comganyh saies grice per unit is s7s, and the Humber af units in ending inventory is 4,000. There was no beginning invemary Fiediack F chech ay Wat Review the definitions of the items in the table, and think backwards from one of the income statements to get the desired values. pepertios isuded be mare iutatul. 2. What is the shenge hoperatizg income from producing 16,000 adstional bints under ahiberptah cosking? 3. What wi the change in operating income fromi produdng 10,000 additional onts under variable costiog? 4. What would be your recomminendacion to the production manager? a. Do not produce the extra $0,000 units. The increase in operating income under absorption costing is due to foed manufacturing costs being held in inventory, and the adotional inventory war lead to higher handling, sterage, financing, and obsolescence costs. 1. Use the income statements on the Absombion Statement and Variable Statement to complete the following table for the original production irvel. Thion prepare similar income statiments at a production level 10,000 units higher and add that information to the table. Assume that total fixed costs, urit vatiable costs, unit sales price, and the sales levels are the same at both production levels. 2. What is the change in operating inceme from producing 10,000 additional units under absorption costing? 3. What is the change in operating income from producing 10,000 additional units under variable costing? 4. What would be your recommendation to the production manager? a. Do nat produce the extre 10,000 units. The increase in operating income under absorption costing is due to fixed manufacturing costs being held in inventory, and the additional inventory will lead to higher handling, storage, financing, and obsolescence costs. b. Produce the extra 10,000 units. Operating income will be increased, and the production manager will receive praise for creating higher pronts. C. Do not produce the extra 10,000 units. Operating income does not change under absorption costing when the additional units are produced. d. Produce the extra 10,000 units. It's always a good idea to have extra units on hand and keep the factory operating at capacity, even if all the units are not sold
