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    C3 Sample Problems

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    Laijanie Claire Gonzales Alvarez
    Farris Corporation produced 5,000 units in its first year, selling 3,800 units. Using absorption costing, which allocates fixed costs to inventory and cost of goods sold, Farris would report income before taxes of $X. Using variable costing, which does not allocate fixed costs to inventory, Farris would report income of $Y, a different amount than under absorption costing, because the two methods treat fixed costs differently.

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    C3 Sample Problems

    Uploaded by

    Laijanie Claire Gonzales Alvarez
    9 views1 page
    Farris Corporation produced 5,000 units in its first year, selling 3,800 units. Using absorption costing, which allocates fixed costs to inventory and cost of goods sold, Farris would report income before taxes of $X. Using variable costing, which does not allocate fixed costs to inventory, Farris would report income of $Y, a different amount than under absorption costing, because the two methods treat fixed costs differently.

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    Farris Corporation produced 5,000 units in its first year, selling 3,800 units. Using absorption costing, which allocates fixed costs to inventory and cost of goods sold, Farris would report income before taxes of $X. Using variable costing, which does not allocate fixed costs to inventory, Farris would report income of $Y, a different amount than under absorption costing, because the two methods treat fixed costs differently.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    9 views1 page

    C3 Sample Problems

    Uploaded by

    Laijanie Claire Gonzales Alvarez
    Farris Corporation produced 5,000 units in its first year, selling 3,800 units. Using absorption costing, which allocates fixed costs to inventory and cost of goods sold, Farris would report income before taxes of $X. Using variable costing, which does not allocate fixed costs to inventory, Farris would report income of $Y, a different amount than under absorption costing, because the two methods treat fixed costs differently.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
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    C3 SAMPLE PROBLEMS

    1. Farris Corporation produces a single product. The following is a cost structure applied to its
    first year of operations.

    Sales price $15 per unit


    Variable costs:
    SG&A $2 per unit
    Production $4 per unit
    Fixed costs (total cost incurred for the year):
    SG&A $14,000
    Production $20,000

    During the first year, Farris Corporation manufactured 5,000 units and sold 3,800. There was no
    beginning or ending work-in-process inventory.

    Required:
    a. How much income before income taxes would be reported if Farris Corporation uses
    absorption costing?
    b. How much income before income taxes would be reported if variable costing was used?
    c. Show why the two costing methods give different income amounts.

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