Question 2 (4 points)

XY Company uses actual absorption costing. The operating data follows:

Selling Price (per unit) $1000

Unit Variable Manufacturing Costs 150

Unit Variable Marketing Cost 350

Fixed Manufacturing Costs 400

*All costs are on per unit basis. There are no other costs:

Required:

1. What is the effect on net income if sales goes up by 1 unit with no change in production? (1 points)
2. What is the effect on net income if production goes up by 1 unit with no change in sales? (1 points)
3. Explain the difference in the effects. (2 point)