At EOM Inc

question 126

Essay

At EOM Inc., the beginning inventory is 20,000 units. All of the units manufactured during the period and 16,000 units of the beginning inventory were sold. The beginning inventory fixed costs are $50 per unit, and variable costs are $300 per unit. Determine (a) whether variable costing operating income is less than or greater than absorption costing operating income and (b) the difference in variable costing and absorption operating income.

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Definitions:

Direct Labor Cost

The total cost of all the labor that is directly involved in the production of goods or services, including wages and other related expenses.

Gross Profit

The financial gain obtained after subtracting the cost of goods sold from revenue, indicating the efficiency of production and sales activities.

Direct Materials

Raw materials that are directly traceable to the manufacturing of a product.

Overhead Rate

A measure used in cost accounting to allocate overhead costs to produced units, typically expressed as a percentage or a ratio.