Question:
(Net income; absorption vs. variable costing) Tennessee Tack manufactures horse blankets. In 2010, ?xed overhead was applied to products at the rate of $8 per unit. Variable cost per unit remained constant throughout the year. In July 2010, income under variable costing was $188,000. July's beginning and ending inventories were 20,000 and 10,400 units, respectively.
a. Calculate income under absorption costing assuming no variances.
b. Assume instead that the company's July beginning and ending inventories were 9,000 and 12,000 units, respectively. Calculate income under absorption costing.