D is corrent. Variable and absorption costing methods of accounting for fixed manufacturing overhead differ. Under variable costing, fixed manufacturing overhead is expensed, whereas under absorption costing, such amounts are treated as a product cost and inventoried. The treatment of fixed manufacturing overhead often results in different levels of net income between the absorption and variable costing methods. The differences are timing differences, which result from recognizing the fixed manufacturing in a different way. Variable costing recognizes fixed manufacturing overhead in the period incurred. Absorption costing recognizes fixed manufacturing overhead in the period that the units to which fixed overhead has been applied are sold.
Since only 80,000 of the 100,000 units produced were sold, only 80% of fixed manufacturing costs, $144,000, would be included in full absorption costing. The full $180,000 of fixed manufacturing costs would be used to determine net income for variable costing, which causes the $36,000 difference between the different methods in calculating net income.
A is incorrect. The solution is determined by calculating the amount of fixed costs carried over under absorption costing.
A is incorrect. The solution is determined by calculating the amount of fixed costs carried over under absorption costing.
A is incorrect. The solution is determined by calculating the amount of fixed costs carried over under absorption costing.
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