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The level of inventory of a manufactured product has increased by 7,000 units during a period. The following data are also available:
Variable Fixed
Unit manufacturing costs of the period $12.00 $6.00
Unit operating expenses of the period 4.00 1.50
Required:
1. The effect on operating income if absorption costing is used rather than variable costing would be a __________.

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Answer:

$42,000 Increase

Explanation:

Effect on income from operations if absorption costing is used rather than variable costing;

= 7,000 * $6.00

= $42,000 increase

Therefore the effect on operating income if absorption costing is used rather than variable costing would be a $42,000 increase.

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