Question

During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $6 per unit, Direct labor, $4 per unit, Variable overhead, $5 per unit, and Fixed overhead, $220,000. The company produced 22,000 units, and sold 16,000 units, leaving 6,000 units in inventory at year-end. Income calculated under variable costing is determined to be $330,000. How much income is reported under absorption costing

Answer 1

$390,000

Step-by-step explanation:

Given the above information, we'll determine first the total variable cost.

Total variable cost = (direct materials + direct labor + variable overhead) × units produced

= ($6 + $4 + $5) × 22,000 units

= $15 × 22,000 units

= $330,000

Per unit fixed cost = Fixed cost / total units produced

= $220,000/$22,000

= $10

Fixed cost in inventory = Inventory at year end × Per unit fixed cost

= 6,000 × $10

= $60,000

Net income under absorption costing = income under variable costing + Fixed cost on inventory

= $330,000 + $60,000

= $390,000