Posted: August 4th, 2016

What is a a variable cost?

Lockhart Products produces a single product. During 2009 the company incurred the following costs:

Variable product costs= \$8/ per unit
Variable period costs= \$2/ per unit
Total fixed product costs= \$21,000
Total fixed period costs= \$10,000

Lockhart had no units in beginning inventory. During 2009, 6,000 units were produced and 5,000 units were sold. Which of the following statements is true when comparing net income using absorption versus variable costing?

a) Net income will \$3,500 higher using absorption costing than using variable costing.
b) Net income will \$3,500 lower using absorption costing than using variable costing.
c) Net income will \$4,200 higher using absorption costing than using variable costing.
d) Net Income will \$4,200 lower using absorption costing than using variable costing.

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