Sea Star Company manufactures diving masks with a variable cost of $218. The masks sell for $440. Budgeted fixed manufacturing overhead for the most recent year was $4,180,000. Actual production was equal to planned production.

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.

Production

20,000

units

Sales

23,900

units

2.

Production

11,800

units

Sales

11,800

units

3.

Production

11,000

units

Sales

9,900

units

Variable costing

	Income Higher Under (Method)	Amount of Difference
1.	Variable costing
2.	Same under both
3.	Absorption costing

+