CHAPTER 12
VARIABLE COSTING
I. Questions1. The variable costing technique does not consider fixed costs as unimportant or irrelevant, but it maintains that the distinction between behaviors of different costs is crucial for certain decisions.
2. The central issue in variable costing is what is the proper timing for release of fixed manufacturing overhead as expense: at the time of incurrence, or at the time the finished units to which the fixed overhead relates are sold.
3. Direct costing would be more accurately called variable or marginal costing because in substance it is the inventory costing method which applies only variable production costs to product; fixed factory overhead is not assigned to product.
4. Marketing and administrative costs are treated as period costs under both variable costing and absorption costing methods of product costing. 5. Under absorption costing, as a company manufactures units of product,
the fixed manufacturing overhead costs of the period are added to the units, along with direct materials, direct labor, and variable manufacturing overhead. If some of these units are not sold by the end of the period, then they are carried into the next period as inventory. The fixed manufacturing overhead cost attached to the units in ending inventory follow the units into the next period as part of their inventory cost. When the units carried over as inventory are finally sold, the fixed manufacturing overhead cost that has been carried over with the units is included as part of that period’s cost of goods sold.
6. Many accountants and managers believe absorption costing does a better job of matching costs with revenues than variable costing. They argue that all manufacturing costs must be assigned to products to properly match the costs of producing units of product with the revenues from the units when they are sold. They believe that the fixed costs of depreciation, taxes, insurance, supervisory salaries, and so on, are just as essential to manufacturing products as are the variable costs.
7. If fixed manufacturing overhead cost is released from inventory, then inventory levels must have decreased and therefore production must have been less than sales.
8. Under absorption costing it is possible to increase net operating income without increasing sales by increasing the level of production. If production exceeds sales, units of product are added to inventory. These units carry a portion of the current period’s fixed manufacturing overhead costs into the inventory account, thereby reducing the current period’s reported expenses and causing net operating income to rise.
9. Generally speaking, variable costing cannot be used externally for financial reporting purposes nor can it be used for tax purposes.
10. If production exceeds sales, absorption costing will show higher net operating income than variable costing. The reason is that inventories will increase and therefore part of the fixed manufacturing overhead cost of the current period will be deferred in inventory to the next period under absorption costing. By contrast, all of the fixed manufacturing overhead cost of the current period will be charged immediately against revenues as a period cost under variable costing.
11. Absorption and variable costing differ in how they handle fixed manufacturing overhead. Under absorption costing, fixed manufacturing overhead is treated as a product cost and hence is an asset until products are sold. Under variable costing, fixed manufacturing overhead is treated as a period cost and is expensed on the current period’s income statement. 12. Advocates of variable costing argue that fixed manufacturing costs are not
really the cost of any particular unit of product. If a unit is made or not, the total fixed manufacturing costs will be exactly the same. Therefore, how can one say that these costs are part of the costs of the products? These costs are incurred to have the capacity to make products during a particular period and should be charged against that period as period costs according to the matching principle.
II. Exercises
Exercise 1 (Variable and Absorption Costing Unit Product Costs and Income Statements)
Requirement 1
a. The unit product cost under absorption costing would be:
Direct materials... P18
Direct labor... 7
Variable manufacturing overhead... 2
Total variable manufacturing costs... 27
Fixed manufacturing overhead (P160,000 ÷ 20,000 units)... 8
Unit product cost... P35 b. The absorption costing income statement: Sales (16,000 units × P50 per unit)... P800,000 Less cost of goods sold: Beginning inventory... P 0
Add cost of goods manufactured (20,000 units × P35 per unit)... 700,000 Goods available for sale... 700,000 Less ending inventory (4,000 units × P35 per unit)... 140,000 560,000 Gross margin... 240,000 Less selling and administrative expenses... 190,000* Net operating income... P 50,000 *(16,000 units × P5 per unit) + P110,000 = P190,000. Requirement 2 a. The unit product cost under variable costing would be: Direct materials... P18 Direct labor... 7
Variable manufacturing overhead... 2
Unit product cost... P27 b. The variable costing income statement: Sales (16,000 units × P50 per unit)... P800,000 Less variable expenses: Variable cost of goods sold: Beginning inventory... P 0 Add variable manufacturing costs
(20,000 units × P27 per unit)... 540,000 Goods available for sale... 540,000
Less ending inventory
(4,000 units × P27 per unit)... 108,000 Variable cost of goods sold... 432,000 * Variable selling expense
(16,000 units × P5 per unit)... 80,000 512,000 Contribution margin... 288,000 Less fixed expenses:
Fixed manufacturing overhead... 160,000
Fixed selling and administrative... 110,000 270,000 Net operating income... P 18,000
* The variable cost of goods sold could be computed more simply as: 16,000 units × P27 per unit = P432,000.
Exercise 2 (Variable and Absorption Costing Unit Product Costs)
Requirement 1
Sales (40,000 units × P33.75 per unit)... P1,350,000 Less variable expenses:
Variable cost of goods sold
(40,000 units × P16 per unit*)...P640,000 Variable selling and administrative expenses
(40,000 units × P3 per unit)... 120,000 760,000 Contribution margin... 590,000 Less fixed expenses:
Fixed manufacturing overhead...250,000
Fixed selling and administrative expenses... 300,000 550,000 Net operating income... P 40,000
*Direct materials...P10 Direct labor...4 Variable manufacturing overhead... 2 Total variable manufacturing cost...P16 Requirement 2
The difference in net operating income can be explained by the P50,000 in fixed manufacturing overhead deferred in inventory under the absorption costing method:
Variable costing net operating income... P40,000 Add: Fixed manufacturing overhead cost 50,000
deferred in inventory under absorption costing: 10,000 units × P5 per unit in
fixed manufacturing overhead cost...
Absorption costing net operating income... P90,000
Exercise 3 (Variable Costing Unit Product Cost and Income Statement; Break-even)
Requirement 1
Under variable costing, only the variable manufacturing costs are included in product costs.
Direct materials... P 600 Direct labor... 300 Variable manufacturing overhead... 100 Unit product cost... P1,000 Note that selling and administrative expenses are not treated as product costs; that is, they are not included in the costs that are inventoried. These expenses are always treated as period costs and are charged against the current period’s revenue.
Requirement 2
The variable costing income statement appears below:
Sales... P18,000,000 Less variable expenses:
Variable cost of goods sold:
Beginning inventory... P 0 Add variable manufacturing costs
(10,000 units × P1,000 per unit)... 10,000,000 Goods available for sale... 10,000,000 Less ending inventory (1,000 units × P1,000
per unit)... 1,000,000 Variable cost of goods sold*... 9,000,000 Variable selling and administrative (9,000 units ×
Contribution margin... 7,200,000 Less fixed expenses:
Fixed manufacturing overhead... 3,000,000
Fixed selling and administrative... 4,500,000 7,500,000 Net operating loss... P (300,000) * The variable cost of goods sold could be computed more simply as: 9,000 units
sold × P1,000 per unit = P9,000,000. Requirement 3
The break-even point in units sold can be computed using the contribution margin per unit as follows:
Selling price per unit...P2,000 Variable cost per unit... 1,200 Contribution margin per unit...P 800
Exercise 4 (Absorption Costing Unit Product Cost and Income Statement)
Requirement 1
Under absorption costing, all manufacturing costs (variable and fixed) are included in product costs.
Direct materials... P 600 Direct labor... 300 Variable manufacturing overhead... 100 Fixed manufacturing overhead
(P3,000,000 ÷ 10,000 units)... 300 Unit product cost... P1,300 Requirement 2
The absorption costing income statement appears below:
Sales (9,000 units × P2,000 per unit)... P18,000,000 Break-even unit sales = Unit contribution marginFixed expenses
= P800 per unitP7,500,000 = 9,375 units
Cost of goods sold:
Beginning inventory...P 0 Add cost of goods manufactured
(10,000 units × P1,300 per unit)... 13,000,000 Goods available for sale...13,000,000 Less ending inventory
(1,000 units × P1,300 per unit)... 1,300,000 11,700,000 Gross margin... 6,300,000 Selling and administrative expenses:
Variable selling and administrative (9,000 units
× P200 per unit)...1,800,000
Fixed selling and administrative... 4,500,000 6,300,000 Net operating income... P 0 Note: The company apparently has exactly zero net operating income even though its sales are below the break-even point computed in Exercise 3. This occurs because P300,000 of fixed manufacturing overhead has been deferred in inventory and does not appear on the income statement prepared using absorption costing.
Exercise 5 (Variable Costing Income Statement; Explanation of Difference in Net Operating Income)
Requirement 1
2,000 units × P60 per unit fixed manufacturing overhead = P120,000 Requirement 2
The variable costing income statement appears below:
Sales... P4,000,000 Variable expenses:
Variable cost of goods sold:
Beginning inventory...P 0 Add variable manufacturing costs
(10,000 units × P310 per unit)... 3,100,000 Goods available for sale...3,100,000 Less ending inventory
(2,000 units × P310 per unit)... 620,000 Variable cost of goods sold*...2,480,000 Variable selling and administrative
(8,000 units × P20 per unit)... 160,000 2,640,000 Contribution margin... 1,360,000
Fixed expenses:
Fixed manufacturing overhead... 600,000
Fixed selling and administrative... 400,000 1,000,000 Net operating income... P 360,000 * The variable cost of goods sold could be computed more simply as: 8,000
units sold × P310 per unit = P2,480,000.
The difference in net operating income between variable and absorption costing can be explained by the deferral of fixed manufacturing overhead cost in inventory that has taken place under the absorption costing approach. Note from part (1) that P120,000 of fixed manufacturing overhead cost has been deferred in inventory to the next period. Thus, net operating income under the absorption costing approach is P120,000 higher than it is under variable costing.
Exercise 6 (Evaluating Absorption and Variable Costing as Alternative Costing Methods)
Requirement 1
a. By assumption, the unit selling price, unit variable costs, and total fixed costs are constant from year to year. Consequently, variable costing net operating income will vary with sales. If sales increase, variable costing net operating income will increase. If sales decrease, variable costing net operating income will decrease. If sales are constant, variable costing net operating income will be constant. Because variable costing net operating income was P16,847 each year, unit sales must have been the same in each year.
The same is not true of absorption costing net operating income. Sales and absorption costing net operating income do not necessarily move in the same direction because changes in inventories also affect absorption costing net operating income.
b. When variable costing net operating income exceeds absorption costing net operating income, sales exceeds production. Inventories shrink and fixed manufacturing overhead costs are released from inventories. In contrast, when variable costing net operating income is less than absorption costing net operating income, production exceeds sales. Inventories grow and fixed manufacturing overhead costs are deferred in inventories. The year-by-year effects are shown below.
Year 1 Year 2 Year 3 Variable costing NOI =
Absorption costing NOI
Variable costing NOI < Absorption costing
NOI
Variable costing NOI > Absorption costing
NOI Production = Sales Production > Sales Production < Sales Inventories remain the
same Inventories grow Inventories shrink
Requirement 2
a. As discussed in part (1 a) above, unit sales and variable costing net operating income move in the same direction when unit selling prices and the cost structure are constant. Because variable costing net operating income declined, unit sales must have also declined. This is true even though the absorption costing net operating income increased. How can that be? By manipulating production (and inventories) it may be possible to maintain or increase the level of absorption costing net operating income even though unit sales decline. However, eventually inventories will grow to be so large that they cannot be ignored.
b. As stated in part (1 b) above, when variable costing net operating income is less than absorption costing net operating income, production exceeds sales. Inventories grow and fixed manufacturing overhead costs are deferred in inventories. The year-by-year effects are shown below.
Year 1 Year 2 Year 3
Variable costing NOI = Absorption costing
NOI Absorption costing NOIVariable costing NOI <
Variable costing NOI < Absorption costing
NOI Production = Sales Production > Sales Production > Sales Inventories remain the
same Inventories grow Inventories grow
Requirement 3
Variable costing appears to provide a much better picture of economic reality than absorption costing in the examples above. In the first case, absorption costing net operating income fluctuates wildly even though unit sales are the same each year and unit selling prices, unit variable costs, and total fixed costs remain the same. In the second case, absorption costing net operating income increases from year to year even though unit sales decline. Absorption costing is much more subject to manipulation than variable costing. Simply by changing production levels (and thereby deferring or releasing costs from
inventory) absorption costing net operating income can be manipulated upward or downward.
Note: This exercise is based on the following data: Common data:
Annual fixed manufacturing costs... P153,153 Contribution margin per unit... P35,000 Annual fixed SGA costs... P180,000 Part 1:
Year 1 Year 2 Year 3 Beginning inventory... 1 1 2 Production... 10 11 9 Sales... 10 10 10 Ending... 1 2 1 Variable costing net operating income...P16,847 P16,847 P16,847 Fixed manufacturing overhead in beginning
inventory*...P15,315 P15,315 P27,846 Fixed manufacturing overhead in ending inventory...P15,315 P27,846 P17,017 Absorption costing net operating income...P16,847 P29,378 P6,018 * Fixed manufacturing overhead in beginning inventory is assumed in both parts 1 and
2 for Year 1. A FIFO inventory flow assumption is used. Part 2:
Year 1 Year 2 Year 3 Beginning inventory... 1 1 4 Production... 10 12 20 Sales... 10 9 8 Ending... 1 4 16 Variable costing net operating income (loss)...P16,847 (P18,153) (P53,153) Fixed manufacturing overhead in beginning
inventory*...P15,315 P15,315 P51,051 Fixed manufacturing overhead in ending
inventory...P15,315 P51,051 P122,522 Absorption costing net operating income...P16,847 P17,583 P18,318 * Fixed manufacturing overhead in beginning inventory is assumed in both parts 1 and
III. Problems
Problem 1
Requirement 1: Variable Costing Method Romero Parts, Inc.
Income Statement - Manufacturing For the Year Ended December 31, 2005
Sales P20,700,000
Less: Variable Cost of Sales
Inventory, Jan. 1 P1,155,000
Current Production 7,700,000 Total Available for Sale P8,855,000
Inventory, Dec. 31 805,000 8,050,000
Contribution Margin P12,650,000
Less Fixed Costs and Expenses 6,000,000
Net Income P 6,650,000
Requirement 2: Absorption Costing Method Romero Parts, Inc.
Income Statement - Manufacturing For the Year Ending December 31, 2006
Sales P26,100,000
Less Cost of goods sold:
Inventory, Jan. 1 P 1,380,000
Current Production 16,100,000 Total Available for Sale P17,480,000 Inventory, Dec. 31 747,500 Cost of Sales - Standard P16,732,500
Favorable Capacity Variance 900,000 15,832,500
Requirement 3: Variable Costing Method Romero Parts, Inc.
Income Statement - Manufacturing For the Year Ending December 31, 2006
Sales P26,100,000
Less Variable Cost of Sales:
Inventory, Jan. 1 P 805,000
Production 9,800,000
Total Available for Sale P10,605,000
Inventory, Dec. 31 455,000 10,150,000 Contribution Margin - Manufacturing P15,950,000
Less Fixed Cost 5,400,000
Income from Manufacturing P10,550,000
Reconciliation
Net Income, absorption costing P10,267,500
Add Fixed Factory Overhead Inventory, 1/1 575,000
Total P10,842,500
Less Fixed Factory Overhead Inventory, 12/31 292,500
Net Income, direct costing P10,550,000
Problem 2
Requirement 1
Honey Company
Income Statement - Direct Costing For the Year Ended December 31, 2005
Sales P280,000
Less Variable Cost of Sales:
Finished Goods Inventory, 1/1 P 4,000
Current Production 120,000
Total Available for Sale P124,000 Finished Goods Inventory, 12/31 12,000 Variable Cost of Sale - Standard P112,000
Unfavorable Variance 5,000 117,000
Contribution Margin - Manufacturing P163,000
Less Variable Marketing Expenses 28,000
Contribution Margin - Final P135,000
Less Fixed Costs and Expenses:
Fixed Factory Overhead P 54,000 Fixed Marketing and
Administrative Expenses 20,000 74,000
Net Income P 61,000
Requirement 2
Honey Company
Income Statement - Absorption Costing For the Year Ended December 31, 2005
Sales P280,000
Less: Cost of Sales
Finished goods inventory, Jan. 1 (1,000 x P5.50) P 5,500 Current production costs
Variable (30,000 x P4.00) P120,000
Fixed (30,000 x P1.50) 45,000 165,000 P170,500 Less: Finished goods inventory, Dec. 31
(3,000 x P5.50) 16,500
Cost of Sales - at Standard P154,000
Add (Deduct) Variance
Unfavorable variable manufacturing
costs variances 5,000
Underapplied fixed factory overhead
(6,000 x P1.50) 9,000
Cost of Sales - Actual P168,000
Gross Profit P112,000
Less: Selling and administrative expenses
Variable 28,000
Fixed 20,000
P 48,000
Problem 3 (Variable Costing Income Statement; Reconciliation)
Requirement 1
The unit product cost under the variable costing approach would be computed as follows:
Direct materials...P 8 Direct labor...10 Variable manufacturing overhead... 2 Unit product cost...P20 With this figure, the variable costing income statements can be prepared:
Year 1 Year 2
Sales...P1,000,000 P1,500,000 Less variable expenses:
Variable cost of goods sold @ P20 per unit...400,000 600,000 Variable selling and administrative
@ P3 per unit... 60,000 90,000 Total variable expenses... 460,000 690,000 Contribution margin... 540,000 810,000 Less fixed expenses:
Fixed manufacturing overhead...350,000 350,000 Fixed selling and administrative... 250,000 250,000 Total fixed expenses... 600,000 600,000 Net operating income (loss)...P (60,000) P 210,000 Requirement 2
Variable costing net operating income (loss)...P (60,000) P 210,000 Add: Fixed manufacturing overhead cost deferred
in inventory under absorption costing (5,000
units × P14 per unit)... 70,000 Deduct: Fixed manufacturing overhead cost
released from inventory under absorption
costing (5,000 units × P14 per unit)... (70,000) Absorption costing net operating income...P 10,000 P 140,000
Problem 4 (Prepare and Interpret Statements; Changes in Both Sales and Production; JIT)
Year 1 Year 2 Year 3
Sales P1,000,000 800,000 P1,000,000P
Less variable expenses: Variable cost of goods sold
@ P4 per unit 200,000 160,000 200,000
Variable selling and administrative
@ P2 per unit 100,000 80,000 100,000 Total variable expenses 300,000 240,000 300,000 Contribution margin 700,000 560,000 700,000 Less fixed expenses:
Fixed manufacturing overhead 600,000 600,000 600,000 Fixed selling and administrative 70,000 70,000 70,000 Total fixed expenses 670,000 670,000 670,000 Net operating income (loss) P 30,000 P(110,000) P 30,000 Requirement 2
a.
Year 1 Year 2 Year 3
Variable manufacturing cost P 4 P 4 P 4
Fixed manufacturing cost:
P600,000 ÷ 50,000 units 12
P600,000 ÷ 60,000 units 10
P600,000 ÷ 40,000 units 15
Unit product cost P16 P14 P19
b.
Variable costing net operating income
(loss) P30,000 P(110,000) P 30,000
Add (Deduct): Fixed manufacturing overhead cost deferred in inventory from Year 2 to Year 3 under absorption costing (20,000 units ×
P10 per unit) 200,000 (200,000)
Add: Fixed manufacturing overhead cost deferred in inventory from Year 3 to the future under absorption costing (10,000 units × P15 per unit)
150,000 Absorption costing net operating income
Requirement 3
Production went up sharply in Year 2 thereby reducing the unit product cost, as shown in (2a). This reduction in cost, combined with the large amount of fixed manufacturing overhead cost deferred in inventory for the year, more than offset the loss of revenue. The net result is that the company’s net operating income rose even though sales were down.
Requirement 4
The fixed manufacturing overhead cost deferred in inventory from Year 2 was charged against Year 3 operations, as shown in the reconciliation in (2b). This added charge against Year 3 operations was offset somewhat by the fact that part of Year 3’s fixed manufacturing overhead costs was deferred in inventory to future years [again see (2b)]. Overall, the added costs charged against Year 3 were greater than the costs deferred to future years, so the company reported less income for the year even though the same number of units was sold as in Year 1.
Requirement 5
a. Several things would have been different if the company had been using JIT inventory methods. First, in each year production would have been geared to sales so that little or no inventory of finished goods would have been built up in either Year 2 or Year 3. Second, unit product costs probably would have been the same in all three years, since these costs would have been established on the basis of expected sales (50,000 units) for each year. Third, since only 40,000 units were sold in Year 2, the company would have produced only that number of units and therefore would have had some underapplied overhead cost for the year. (See the discussion on underapplied overhead in the following paragraph.)
b. If JIT had been in use, the net operating income under absorption costing would have been the same as under variable costing in all three years. The reason is that with production geared to sales, there would have been no ending inventory on hand, and therefore there would have been no fixed manufacturing overhead costs deferred in inventory to other years. Assuming that the company expected to sell 50,000 units in each year and that unit product costs were set on the basis of that level of expected activity, the income statements under absorption costing would have appeared as follows:
Year 1 Year 2 Year 3
Less cost of goods sold:
Cost of goods manufactured @ P16 per unit 800,000 640,000 * 800,000 Add underapplied overhead 120,000 ** Cost of goods sold 800,000 760,000 800,000
Gross margin 200,000 40,000 200,000
Selling and administrative expenses 170,000 150,000 170,000 Net operating income (loss) P 30,000 P(110,000) P 30,000 * 40,000 units × P16 per unit = P640,000.
** 10,000 units not produced × P12 per unit fixed manufacturing overhead cost = P120,000 fixed manufacturing overhead cost not applied to products.
Problem 5 (Contrasting Variable and Absorption Costing)
Requirement 1 (a)
Under absorption costing, all manufacturing costs, variable and fixed, are included in unit product costs:
Year 1 Year 2
Direct materials P11 P11
Direct labor 6 6
Variable manufacturing overhead 3 3
Fixed manufacturing overhead
(P120,000 10,000 units) 12
(P120,000 6,000 units) 20
Unit product cost P32 P40
Requirement 1 (b)
The absorption costing income statements follow:
Year 1 Year 2
Sales (8,000 units x P50 per unit) P400,000 P400,000
Cost of goods sold:
Beginning inventory P 0 P 64,000
Add cost of goods manufactured (10,000 units x P32 per unit;
6,000 units x P40 per unit) 320,000 240,000
Goods available for sale 320,000 304,000
Less ending inventory
x P40 per unit)
Gross margin 144,000 96,000
Selling and administrative expenses (8,000 units x P4 per unit +
P70,000) 102,000 102,000
Net operating income P 42,000 P (6,000)
Requirement 2 (a)
Under variable costing, only the variable manufacturing costs are included in unit product costs:
Year 1 Year 2
Direct materials P11 P11
Direct labor 6 6
Variable manufacturing overhead 3 3
Unit product cost P20 P20
Requirement 2 (b)
The variable costing income statements follow. Notice that the variable cost of goods sold is computed in a simpler, more direct manner than in the examples provided earlier. On a variable costing income statement, this simple approach or the more complex approach illustrated earlier is acceptable for computing the cost of goods sold.
Year 1 Year 2
Sales (8,000 units x P50 per unit) P400,000 P400,000
Variable expenses:
Variable cost of goods sold
(8,000 units x P20 per unit) P160,000 P160,000 Variable selling and administrative
(8,000 units x P4 per unit) 32,000 192,000 32,000 192,000
Contribution margin 208,000 208,000
Fixed expenses:
Fixed manufacturing overhead 120,000 120,000
Fixed selling and administrative
expenses 70,000 190,000 70,000 190,000
Net operating income P 18,000 P 18,000
The reconciliation of the variable and absorption costing net operating incomes follows:
Year 1 Year 2 Variable costing net operating income P18,000 P18,000 Add fixed manufacturing overhead costs
deferred in inventory under absorption
costing (2,000 units x P12 per unit) 24,000 Deduct fixed manufacturing overhead costs
released from inventory under absorption
costing (2,000 units x P12 per unit) (24,000) Absorption costing net operating income P42,000 P(6,000)
Problem 6 (Variable Costing Income Statement; Reconciliation)
Requirement 1
Sales (40,000 units × P33.75 per unit)... P1,350,000 Variable expenses:
Variable cost of goods sold
(40,000 units × P16 per unit*)...P640,000 Variable selling and administrative expenses
(40,000 units × P3 per unit)... 120,000 760,000 Contribution margin... 590,000 Fixed expenses:
Fixed manufacturing overhead...250,000
Fixed selling and administrative expenses... 300,000 550,000 Net operating income... P 40,000
* Direct materials... P10 Direct labor... 4 Variable manufacturing overhead... 2 Total variable manufacturing cost... P16 Requirement 2
The difference in net operating income can be explained by the P50,000 in fixed manufacturing overhead deferred in inventory under the absorption costing method:
Variable costing net operating income...P40,000 Add: Fixed manufacturing overhead cost deferred in inventory 50,000
under absorption costing: 10,000 units × P5 per unit in fixed
manufacturing overhead cost... Absorption costing net operating income...P90,000 IV. Multiple Choice Questions
1. D 11. B 2. B 12. A 3. B 13. C 4. B 14. D 5. B 15. B 6. C 16. A 7. A 17. C 8. B 18. C 9. A 19. B 10. A 20. C
