Difference between absorption costing and variable costing
Course:- Managerial Accounting
Reference No.:- EM132231824

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Question 1
What is the basic difference between absorption costing and variable costing?

Question 2
Refined Elegance Corp. makes a desk specially designed for personal computers. The desk sells for $200.

Data for last year's operations follow:

Units in beginning inventory


Units produced


Units sold


Units in ending inventory


Variable costs per unit


Direct materials 


Direct labour


Variable manufacturing overhead 


Variable selling and administrative


Total variable cost per unit 


Fixed costs


Fixed manufacturing overhead  


Fixed selling and administrative


Total fixed costs  


Assume that the company uses variable costing. Compute the unit product cost for one computer desk.

Assume that the company uses variable costing. Prepare a contribution format income statement for the year.

What is the company's break-even point in terms of units sold?

Question 3
Refer to the data in the previous question for Refined Elegance Corp. Assume in this exercise that the company uses absorption costing.
Compute the unit product cost for one computer desk.

Prepare an income statement for the year.

Question 4
The following information pertains to Death Star Corporation for a period

Selling price per unit


Standard fixed manufacturing costs per unit


Variable selling and administrative costs per unit


Fixed selling and administrative cost per unit


Beginning inventories:




          Standard fixed manufacturing cost


          Standard variable manufacturing cost


          Units produced


          Units sold


Assume the unit standard costs data for the beginning and ending inventories remained constant during the period. What was the total standard cost of the ending inventory under absorption costing?

Question 5

Algonquin Outfitters Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price




Units in beginning inventory


Units produced


Units sold




Variable costs per unit


          Direct materials


          Direct labour


          Variable manufacturing overhead


          Variable selling and administrative




Fixed costs


          Fixed manufacturing overhead


          Fixed selling and administrative


The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.

Compute the total Contribution Margin.

Compute the Operating Income under Variable Costing.

Prepare a reconciliation from your Variable Costing Operating Income to compute Operating Income under absorption costing.


Verified Expert

In the given assignment we were required to solve the questions based on variable costing and absorption costing method to determine the cost per unit, contribution margin and break-even sales of the commodities.

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