Question

Bianca Bicycle Company manufactures mountain bikes with a variable cost of $200. The bicycles sell for $350 each. Budgeted fixed manufacturing overhead for the most recent year was $2,200,000. Planned and actual production for the year were the same.

Required:

State whether operating income is higher under variable or absorption costing and the amount of the difference in reported operating income under the two methods. Treat each condition as an independent case.

1.Production20,000unitsSales23,000units2.Production10,000unitsSales10,000units3.Production11,000unitsSales9,000units