Question

Damp Company incurred the following costs while producing 600 ​units: direct​ materials, $ 13 per​ unit; direct​ labor, $ 22 per​ unit; variable manufacturing​ overhead, $ 18 per​ unit; total fixed manufacturing overhead​ costs, $ 13 comma 200​; variable selling and administrative​ costs, $ 10 per​ unit; total fixed selling and administrative​ costs, $ 8 comma 400. There are no beginning inventories. What is the operating income using absorption costing if 600 units are sold for $ 120 ​each? A. $ 6 comma 300 B. $ 2 comma 340 C. $ 12 comma 600 D. $ 23 comma 940 Click to select your answer.

Answer 1

Option (c) is correct.

Step-by-step explanation:

Unit product cost under absorption costing:

= Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead

= $ 13 per​ unit + $22 + $18 + $22

= $75 per unit

Operating Income using absorption costing

Operating Income :

= 600 × $120 - 600 × $75 - 600 × $10 - $8,400

= $72,000 - $45,000 - $6,000 - $8,400

= $12,600