Questions:
(a) What is the major rationale for the use of variable costing?
(b) Discuss why variable costing may not be used for financial reporting purposes.
Knott Corporation sells one product, its waterproof hiking boot. It began operations in the current year and had an ending inventory of 10,500 units. The company sold 20,000 units throughout the year. Fixed manufacturing overhead is $5 per unit, and total manufacturing cost per unit is $20 (including fixed manufacturing overhead costs). What is the difference in net income between absorption and variable costing?