Answer: $365,000 ⇒ This is the income that is observed under absorption costing.
Step-by-step explanation:
Given that,
Following are the manufacturing costs of McCormick Company:
Direct materials = $5 per unit
Direct labor = $3 per unit
Variable overhead = $4 per unit
Fixed overhead = $250,000
Total units produced by a company = 25,000 units
Total units sold by a company = 20,000 units
Remaining units is for year-end inventory = 5,000 units
Income under Variable costing = $3,15,000
∴ Fixed overhead per unit =
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=
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= $10 per unit
So,
Fixed overhead cost in year-end inventory = Remaining units is for year-end inventory \times Fixed overhead per unit
= 5000 units \times $10
= $50,000
Hence,
Income under absorption costing = Income under variable costing + Fixed overhead cost in year-end inventory - Fixed overhead cost in beginning inventory
= $315,000 + $50,000 - $0
= $365,000 ⇒ This is the income that is observed under absorption costing.