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29 November, 00:38

Kluber, Inc. had net income of $908,000 based on variable costing. Beginning and ending inventories were 55,800 units and 53,600 units, respectively. Assume the fixed overhead per unit was $1.65 for both the beginning and ending inventory. What is net income under absorption costing?

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  1. 29 November, 00:49
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    Net Income using absorption costing = $904,370

    Explanation:

    The net income under absorption costing can be determined a=using the following steps below:

    Step 1-

    Calculate the the Fixed overhead cost per unit

    This has been given as - $1.65

    Step 2:

    Determine the difference in profit between the the two costing systems

    Difference in profit = Fixed overhead cost per unit * change in inventory

    - = $1.65 * (55,800 - 53,600)

    = $3,630

    Step 3

    Absorption costing profit = profit under variable costing - Difference in profit

    = $908,000 - $3,630

    = $904,370

    Kindly note that absorption costing profit is lower because there was a decrease in the level of inventory. Reverse would be the case if the change was an increase.
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