Steele Corporation has the following information for January, February, and March: January February March
Units produced 10,000 10,000 10,000
Units Sold 7,000 8,500 10,500
Production costs per unit (based on 10,000 units) are as follows:

Direct materials per unit

$12
Direct labor per unit 8
Variable overhead per unit 6
Fixed overhead per unit 4
Variable selling cost per unit 10
Fixed selling & administrative costs per unit 4
There were no beginning inventories for January, and all units were sold for $50. Costs are stable over the three months. Absorption costing income for March was than variable costing income.

d. $2,000 less

Explanation:

The computation is shown below:

Particulars      January        February             March

Units beg.

inventory              0                 3,000             4,500

Units produced     10,000       10,000           10,000

Units sold             -7,000        -8,500           -10,500

Units ending

inventory               3,000         4,500                  4,000

Now

= $4 × (4,500 - 4,000)

= $2,000

So, here the income arise from absorption costing should be lower than the variable costing as the inventory is reduced  

they allow producers to sell their products more cheaply than foreign competitors. - ( c.)