Y Company Reported Operating Income for Year 2 of $1,600,000

question 91

Essay

Y Company reported operating income for Year 2 of $1,600,000 under variable costing and $1,200,000 under absorption costing.The total variable manufacturing cost of the company's beginning finished goods inventory was $120,000.The cost of the company's end-of-year finished goods inventory under standard absorption costing was $50,000 higher than the cost of the beginning-of-year finished goods inventory under variable costing.
Required:
a)Calculate the cost of ending finished goods inventory under absorption costing.
b)Compare the operating incomes under absorption costing and variable costing.What do the numbers suggest in terms of relationship,if any,between units sold and units produced in Year 2? Explain.

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Definitions:

Noncash Assets

Assets that cannot be easily converted into cash, such as real estate, equipment, and investments.

Capital Balances

The amount of money each partner has invested in a partnership or the equity value in partnerships' accounts.

Statement Of Partners' Equity

A financial document that shows changes in the ownership interest of partners in a partnership over a period of time.

Total Capital

The sum of a company's debt and equity, representing the funds used to finance its operations and growth.