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Variable and Absorption Costing
1. During 1999, Regal produced 20,000 units and sold 18,000. There were no units in beginning inventory. Each unit sells for $125. Regal reports the following costs:
If Regal uses variable costing, what will the cost of one unit be? Would the cost be different if Regal uses absorption? Explain any difference between the unit cost under variable and absorption costing. Prepare an income statement in a variable costing format and in an absorption costing format. 2. During 2000, Regal produced 20,000 units and sold 21,000. There has been no change in the company's cost structure. If Regal uses variable costing, what is the cost of each unit produced? What is the unit cost assuming Regal uses absorption costing? Prepare an income statement for the year ended December 31, 2000 assuming Regal uses variable costing. Prepare the year 2000 income statement using absorption costing. Reconcile between the income reported under the alternative methods. |
