Inventory Costing and Management

The following information pertains to ABC, Inc., for 2019:

Beginning inventory in units -

Unit produced 25,000

Units sold 23,000

Ending inventory in units 2,000

Variable costs per units:

Direct materials $8

Direct labor $3

Variable overhead $1.8

Variable selling expenses $4

Fixed cost per year:

Fixed overhead $107,500

Fixed selling and administrative $26,800

There are no work-in-process inventories. Normal activity is 25,000 units. Expected and actual overhead costs are the same.

Question:

a. Without preparing an income statement, indicate what the difference will be between variable-costing income and absorption costing income.

b. Assume the selling price is $26. Create an income statement using: (1) variable costing and (b) absorption costing.

c. When we evaluate managerial performance, which method is more appropriate to use, whether variable costing or absorption costing? Why?