FIND THE SOLUTION AND ANSWER:

Black Mamba’s Manufacturing Plant manufactures cemented stands used by

plant nurseries. In January 4141, the company manufactured 48,111 and sold
45,551 stands. The cost per unit for the 48,111 stands produced was as follows:

Direct material P 481.11

Direct labor 441.11
Variable overhead 51.11
Fixed overhead 81.11

There were no beginning inventories for January and no work in process at the
end of January.

Direct material P 481.11

Direct labor 441.11
Variable overhead 51.11
Fixed overhead 81.11
Total P 441.11

What is the value of ending inventory using absorption costing?

Ending Inventory = (48,111 – 45,551) × P441.11
= 4,441 × P441.11
Ending Inventory = P533,511

What is the value of ending inventory using variable costing?

Ending Inventory = (48,111 – 45,551) × (P441.11 – P81.11)
= 4,441 × P351.11
Ending Inventory = P548,411

Which accounting method, variable or absorption, would have produced the

higher net income for January?

Absorption costing is the accounting method which have produced the higher
because it would require P445,411 (4,441 × P81.11) of fixed manufacturing
overhead to be inventoried compared to being charged against income.