Fixed costs are $50 per unit and variable costs are $125 per unit. Production was 130,000 units, while sales were 125,000 units. Determine (a) whether variable cost income from operations is less than or greater than absorption costing income from operations, and (b) the difference in variable costing and absorption costing income from operations.

Variable costing income from operations is less than absorption cost income from operations because under variable costing method, variable costs are considered as product cost and fixed costs are treated as period costs.

The difference in variable costing and absorption costing income from operations:

Production was 130,000 units

Sales were 125,000 units

Closing stock = 130,000 - 125,000 = 5,000

= Closing stock * Fixed cost per unit  

= 5,000 * $50

= $250,000