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The level of inventory of a manufactured product has increased by 5,000 units during a period. The following data are also available:

Variable Fixed
Unit manufacturing costs of the period $24.00 $10.00
Unit operating expenses of the period 8.00 3.00

What would be the effect on income from operations if variable costing is used rather than absorption costing?

a.$65,000 increase

b.$50,000 increase

c.$50,000 decrease

d.$65,000 decrease

Respuesta :

Answer:

Income from operation will decrease by $50,000

Explanation:

given data

inventory of a manufactured = 5,000 units

to find out

effect on income from operations

solution

as we know that in the absorption costing both variable cost and fixed cost are included in the cost of production

so that as under variable costing only the variable manufacturing cost are included in the cost

and

if absorption costing is used the inventory level that will be increased  by10 ×  5000 =  $50,000

so Income from operation will decrease by $50,000

so correct option is c.$50,000 decrease

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