Question

A company that produces a single product had a net operating income of $83,000 using variable costing and a net operating income of $110,840 using absorption costing. Total fixed manufacturing overhead was $55,080 and production was 10,800 units. This year was the first year of operations. Between the beginning and the end of the year, the inventory level:

Answer 1

If the Profit under absorption costing is higher, this means ending inventory is higher than beginning inventory.

Amount of Per units fixed cost will be: $55,080 / 10,800 = 5.1 per unit

Profit impacting units = ($110,840 - $83,000) / 5.1

Profit impacting units = $27,840 / 5.1

Profit impacting units = 5458.823529

Profit impacting units = 5,459 units

So, between the beginning and the end of the year, the inventory level increased by 5,459 units