If Blue Mountain used absorption costing, rather than variable costing, would its income be higher…
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(Absorption and Variable Costing) Blue Mountain sells plastic tubes used in underground sprinkler systems. The company had a total finished goods inventory of 5,000 units on hand at the end of 2011. During 2011, variable manufacturing costs for one tube were $15, while fixed manufacturing costs were $35 per tube. The variable administrative costs related to one tube were $8, and fixed selling and administrative costs per tube were $20. During the year, Blue Mountain sold 25,000 units. If Blue Mountain used absorption costing, rather than variable costing, would its income be higher or lower? What would be the difference in reported profits?
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