Manufacturing costs incurred:
Variable:	$480,000
Fixed:	$295,000
Marketing costs incurred:
Variable:	$124,500
Fixed:	$68,200

AB Toys started 2020 with no inventories. During the year, their expected and actual production was 25,000 units, of which they sold 20,000 units at $90 each. Cost data for the year is as follows: (Click the icon to view the cost data.) Calculate AB Toys' operating income under (1) variable costing, and (2) absorption costing. Explain why operating income differs under the two approaches. Begin by calculating AB Toys' operating income under (1) variable costing. (If an input field is not used in the table, leave the input field empty; do not select a label or enter zero.) 1,800,000 Revenues Variable cost of goods sold Variable marketing costs Contribution margin Fixed manufacturing costs Fixed marketing costs Operating income Now calculate AB Toys' operating income under (2) absorption costing. (If an input field is not used in the table, leave the input field empty; do not select a label or enter a zero.) 1,800,000 Revenues Variable cost of goods sold Fixed manufacturing costs Gross margin Variable marketing costs Fixed marketing costs Operating income Absorption costing treats fixed manufacturing cost as a period cost. while variable costing treats it as a product cost AB Toys has units in ending inventory. Under absorption costing, these units have a fixed manufacturing a cost of per unit. So the total fixed manufacturing cost in ending inventory under absorption costing is Since these costs are inventoried under costing, and not expensed as they would be under costing, operating income is under absorption costing by