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Variable manufacturing costs are $103 per unit, and fixed manufacturing costs are $172,900. Sales are estimated to be 7,000 units.
If an amount is zero, enter "0". Round intermediate calculations to the nearest cent and your final answers to the nearest dollar.
a. How much would absorption costing operating income differ between a plan to produce 7,000 units and a plan to produce 9,100 units?
Production plan for 9,100 units:
2. Calculate Total Cost for Each Plan (Variable Cost + Fixed Cost):
Total cost (Plan 1) = Total variable cost (Plan 1) + Fixed manufacturing cost
Total cost (Plan 1) = $721,000 + $172,900 = $893,900
Total cost (Plan 2) = Total variable cost (Plan 2) + Fixed manufacturing cost
Total cost (Plan 2) = $939,300 + $172,900 = $1,112,200
3. Absorption Costing Operating Income assumes all produced units are sold (no ending inventory).
However, we cannot calculate the actual income as the sales revenue is not provided.
4. Difference in Operating Income:
We can find the difference in operating income between the two plans by subtracting the total cost of Plan 1 from the total cost of Plan 2.
Difference in Operating Income = Total cost (Plan 2) - Total cost (Plan 1)
Difference in Operating Income = $1,112,200 - $893,900 = $218,300
Answer:
The difference in absorption costing operating income between a plan to produce 7,000 units and a plan to produce 9,100 units would be $218,300.
Important Note:
This calculation only considers the difference in production costs. It does not account for the potential difference in sales revenue generated from the additional units produced in Plan 2.
Here's how to calculate the difference in absorption costing operating income between two production plans:
1. Calculate Total Variable Costs for Each Plan:
Production plan for 7,000 units: