Case 8-33: 4. Ending inventory = unit of product cost* No.

inventory
Amount of declined inventory = ending inventory YEAR 1 ending inventory YEAR 2
Unit of product cost
Absorption costing

(DM+DL+ Full. MOH)/ No.

product
Variable costing
(DM+DL+ Variable. MOH)/No.
product
The amount of decline inventory

Absorption costing
Variable costing

(21,000 + 42,000)/3000 = $21

21,000/3,000 = $7

Finished - goods Ending inventory

Year 1
Year 2
$10,500
$0
$3,500
0

Amount of declined
$10,500
$3,500

5.

Absorption costing
Variable costing
Difference

Absorption costing
Variable costing
Difference
Analysis:

Amount of decline finished goods inventory

in YEAR 2
$10,500
3,500
$7,000

Net operate income in YEAR 2

$13,500
20,500
$(7,000)

In YEAR 2, sold units > produced units.

Absorption costing, $7,000 of inventoried fixed MOH was recorded an expense during
Year 2.
Meanwhile variable costing, this fixed MOH had been recorded an expense during Year
1.