Horizon company has $25 per unit selling price, $8.00 per unit in variable production cost and $1.00 per
unit in variable selling and administrative cost. The annual fixed production cost is $400,000. The
annual fixed selling and administrative cost is $50,000.
Required:
a. Complete the table below for each year. Assume a FIFO flow.
2017
2018
2019
2020
Units Produced
120,000
150,000
100,000
100,000
Units Sold
110,000
120,000
140,000
100,000
Manufacturing cost per unit
under full absorption costing
Operating income under
variable costing
Operating income under full
absorption costing
Ending inventory using
variable costing ($)
Ending inventory using full
absorption costing ($)
b. Explain how and why your results in requirement a above differed with respect to operating
income between variable costing and full absorption costing.
