Exam 7: Income Effects of Alternative Cost Accumulation Systems

Explain the differences between variable and absorption costing.

Figure 7-3 Eastwood Company has the following information for 2011: There were no beginning inventories. -Refer to Figure 7-3. What is the ending inventory for Eastwood using the variable costing method?

Assuming sales prices and cost behaviour remain unchanged, when variable costing is used, when does net income change in response to changes in unit sales?

Ramon Company reported the following units of production and sales for June and July 2011: Net income under absorption costing for June was £40,000; net income under variable costing for July was £50,000. Fixed manufacturing costs were £600,000 for each month. How much was net income for July using absorption costing?

Figure 7-2 Steele Ltd. has the following information for January, February, and March 2011: Production costs per unit (based on 10,000 units) are as follows: There were no beginning inventories for January 2011, and all units were sold for £50. Costs are stable over the three months. -Toshi Company incurred the following costs in manufacturing desk calculators: During the period, the company produced and sold 1,000 units. What is the inventory cost per unit using variable costing?