Question

Moneka reported $55,000 of income for the year by using absorption costing. The company had no beginning inventory, planned and actual production of 20,000 units, and sales of 18,000 units. Total variable manufacturing costs were $200,000, and total fixed manufacturing overhead was $50,000. If there were no variances, income under variable costing would be:_______

a. $45,000.
b. $55,000.
c. $65,000.
d. $105,000.
e. $5,000.

Answer 1

Net income under variable costing= $50,000

Step-by-step explanation:

The absorption costing method includes all costs related to production, both fixed and variable. The unit product cost is calculated using direct material, direct labor, and total unitary manufacturing overhead.

We need to deduct to the net income of the absorption costing method, the fixed manufacturing overhead allocated into ending inventory.

Unitary fixed overhead= 50,000 / 20,000

Unitary fixed overhead= $2.5

Net income under variable costing= 55,000 - (2,000*2.5)

Net income under variable costing= $50,000