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    Comparison over 4 years, absorption and variable costing

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    The Balakrishnan Corporation began business on January 1, 2000 to produce and sell a single product. Reported operating income figures under both absorption and variable costing for the first 4 years of operation are as follows:

    Absorption costing
    2000: $80,000
    2001: 70,000
    2002: 50,000
    2003: 40,000

    Variable costing
    2000: $60,000
    2001: 60,000
    2002: 50,000
    2003: 70,000

    Standard production costs per unit, sales price, application (absorption) rates, and expected volume levels were the same in each year. There were no flexible-budget variances for any type of cost. All non-manufacturing expenses were fixed, and there were no manufacturing variances in any year.

    1. In what year(s) did "units produced" equal "units sold"?
    2. In what year(s) did "units produced" exceed "units sold"?
    3. What is the dollar amount of the December 31, 2003, finished goods inventory? (Give absorption-costing value).
    4. What is the difference between "units produced" and "units sold" in 2003, if you know that the absorption-costing fixed-manufacturing overhead application rate is $3 per unit (Give answer in units).

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    Solution Summary

    A comparison over four years of absorption and variable costing is examined.

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