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RefreshAde produced 16,000 cases of powdered drink mix and sold 13,000 cases in April 2018. The sales price was $26, variable costs were $13 per case ($10 manufacturing and $3 selling and administrative), and total fixed costs were $95,000 ($80,000 manufacturing overhead and $15,000 selling and administrative). The company had no beginning Finished Goods Inventory. RefreshAde calculated the cost per unit and the total cost of the 3,000 cases in Finished Goods Inventory as of April 30 using both the absorption and variable costing methods. The calculations are presented below. (Click the icon to view the calculations using the absortion and variable costing methods.) Read the requirements Requirement 1. Which costing method produces the highest operating income? Explain why. The absorpti. cost method produces the highest operating income. The primary reason for this is that in absorption costing, the fixed manufacturing overhead costs are distributed across the entire production run as part of the unit cost. Under the absorption costing method, 15000 of fixed manufacturing costs are expensed as part of Cost of Goods Sold. Under the variable costing method, this amount is expensed as a period cost. Requirement 2. Which costing method produces the highest April 30 balance in Finished Goods Inventory? Explain why. O A. The finished goods inventory under the absorption costing method is higher than under the variable costing method. The primary reason for this is that the unit cost is higher under absorption costing because fixed manufacturing costs are absorbed by the entire production run and not expensed as a period cost, as they would be under the variable costing method. B. The finished goods inventory under the absorption costing method is higher than under the variable costing method. The primary reason for this is that the absorption costing method considers selling and administrative costs to be product costs, and the variable costing method considers them period costs. O C. The finished goods inventory under the absorption costing method is lower than under the variable costing method. The primary reason for this is that with variable costing, some manufacturing fixed costs are still in Finished Goods Inventory on the balance sheet and have not been expensed OD. The finished goods inventory under the absorption costing method is lower than under the variable costing method. The primary reason for this is that the unit cost is higher under variable costing because fixed manufacturing costs are considered a product cost and are not expensed as a period cost, as they would be under the absorption costing method. i Reference April 30, 2018 Absorption Variable costing costing $ 10 $ 10 5 + Variable manufacturing cost per case Fixed manufacturing overhead per case Total product cost per case * Number of cases in Finished Goods Inventory Total cost of Finished Goods Inventory $ 15 S 3,000 10 3,000 $ 45,000 $ 30,000 11