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For both years, explain why the operating income based on absorption costing differed from the operating income based on variable costing. Barnes & Coffman Industries
For both years, explain why the operating income based on absorption costing differed from the operating income based on variable costing.
Barnes & Coffman Industries makes artificial Christmas trees. The unit costs for producing a tree are: Direct materials $25 Direct labor Variable overhead $15 Fixed overhead 5 The company also incurs $1 per tree in variable selling and administrative costs and $4,000 in fixed marketing costs At the beginning of the the company had 900 trees in the beginning Finished Goods Inventory. The company produced 2,000 trees during the year. Sales totaled 1,500 $15 trees at a price of $100 per tree. Operating income for both years are as follows: Year 1 Year 2 Absorption Costing $54,500 $93,500 Variable Costing $52,000 $96,000 For both years, explain why the operating income based on absorption costing differed from the operating income based on variable costing
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