Dolphin Company manufactures two-person sailboats with a variable cost of $1,000. The sailboats sell for $1,750 each. Budgeted fixed manufacturing overhead for the most recent year was $11,000,000. Planned and actual production for the year were the same.
Required: Under each of the following conditions, state (a) whether operating income is higher under variable or absorption costing and (b) the amount of the difference in reported operating income under the two methods. Treat each condition as an independent case.
1. production.........................22,000 units
sales....................................25,000 units
2. Production.........................10,600 units
sales....................................11,000 units
3. Production.........................11,000 units
sales....................................9,800 units