Manta Ray Company manufactures diving masks with a variable cost of $26. The masks sell for $35. Budgeted fixed manufacturing overhead for the most recent year was $892,400. Actual production was equal to planned production.

Required:

State whether operating income is higher under variable or absorption costing and the amount of the difference in reported operating income under the two methods. Treat each condition as an independent case. (Do not round intermediate calculations.)

1. Production 111,550 units

Sales 108,850 units

2. Production 97,000 units

Sales 102,700 units

3. Production 80,200 units

Sales 80,200 units

1. Production is more than sales:-

Under variable cost, the fixed overhead manufacturing will occurs expenses while in absorption costing, a manufacturing overhead will be different in ending inventory, cause the expenses will go high under variable cost that results the net income goes lower under variable cost.

Fixed overhead manufacturing rate

= $892,400 : 111,550 units = 8

Difference amount = 8 * (111,550 - 108,850) = $21,600

2. Production is less than sales:-

Under variable cost, the fixed overhead manufacturing will occurs expenses while in absorption costing, a fixed part of overhead manufacturing released from opening inventory, cause the expenses will be higher under absorption cost that results the net income will be low under absorption cost.

Fixed overhead manufacturing rate

= $892,400 : 97,000 units produced = 9.2

Difference amount = 9.2 * (102,700 - 97,000) = $52,440

3. Production equal to sales : -

Same as net income under both methods.