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Question 20.4: Variable manufacturing costs are $100 per unit, and fixed ma...

Variable manufacturing costs are $100 per unit, and fixed manufacturing costs are $50,000. Sales are estimated to be 4,000 units.
a. How much would absorption costing income from operations differ between a plan to produce 4,000 units and a plan to produce 5,000 units?
b. How much would variable costing income from operations differ between the two production plans?

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a. $10,000 greater in producing 5,000 units. 4,000 units × ($12.50¹ – $10.00²), or [1,000 units × ($50,000/5,000 units)].
b. There would be no difference in variable costing income from operations between the two plans.
¹$50,000/4,000 units
²$50,000/5,000 units

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