EXERCISE 7-9 (20 MINUTES)

80,000 units

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Solutions Manual, Chapter 7 383

Case 7-18 (continued)

Given these data, the reconciliation would be:

July August September

Variable costing net operating in-

come (loss) ... $ (60,000) $ (10,000) $ 40,000

Deduct: Fixed manufacturing

overhead cost released from in-

ventory in July (5,000 units ×

$7 per unit)... (35,000)

Add: Fixed manufacturing over-

head cost deferred in inventory

in July (20,000 units × $7 per

unit) ... 140,000

ventory in August (20,000 units

× $7 per unit) ... (140,000)

in August (25,000 units × $7

per unit) ... 175,000

ventory in September (25,000

units × $7 per unit) ... (175,000)

in September (5,000 units × $7

per unit) ... 35,000

Absorption costing net operating

income (loss) ... $ 45,000 $ 25,000 $(100,000)

An alternate approach to the reconciliation would be as follows:

come (loss) ... $(60,000) $(10,000) $ 40,000

at the end of July (15,000 unit

increase × $7 per unit) ... 105,000

at the end of August (5,000 unit

increase × $7 per unit) ... 35,000

ventory during September

(20,000 unit decrease × $7 per

unit) ... (140,000)

income (loss) ... $ 45,000 $ 25,000 $(100,000)