The jonas company sells its razors at 3 per unit. The company incurs fixed manufacturing overhead cost of 720,000 each year to support production of 1,800,000 so that the fixed manufacturing overhead cost per unit equals 0.40. Prepare a numerical reconciliation and explanation of the difference between operating income for each year under absorption costing and variable costing; Crtics have claimed that a widely used accounting system has led to undesirable buildups of inventory levels. A- Is variable costing or absorption costing more likely to lead to such buildups? Why? And what can be done to counteract undesirable inventory buildups?
2012 2013
sales 1,100 units 1,200 units
production 1,800 units 1,100 units
cost
variable manufacturing $720 $440
fixed manufacturing 720 720
variable operating(marketing) 1,300 1,200
fixed operating marketing 750 750