Variable and Absorption Costing

production and sales for Year $1$ and Year $2$

a$.$ Prepare gross profit computations for Year $1$ and Year $2$ using absorption costing.

Do not use negative signs with your answers.

b$.$ Prepare gross profit computations for Year $1$ and Year $2$ using variable costing.

Do not use negative signs with your answers.

c$.$ Explain how your answers illustrate the impact of differences between production and sales volumes on the gross profits reported each year under absorption and variable costing.

Select the most appropriate statement.

OIf production volume exceeds sales volume, the absorption costing gross profit will be higher than the variable costing gross profit.

Olf sales volume exceeds production volume, the absorption costing gross profit will be higher than the variable costing gross profit.

f production volume exceeds sales volume, the variable costing gross profit will be higher than the absorption costing gross profit.

'sales volume exceeds production volume, the variable costing gross profit will be lower than the absorption costing gross profit.