Question

Brush Industries reports the following information for May:Sales$900,000Fixed cost of goods sold100,000Variable cost of goods sold250,000Fixed selling and administrative costs100,000Variable selling and administrative costs125,000Calculate the operating income for May under absorption costing?A.$650,000B.$325,000C.$525,000D.$550,000

Answer 1

B.$325,000

Step-by-step explanation:

Under absorption costing, the period costs include general and administrative costs as well as product costs. Therefore, all of the costs provided should be considered for calculating the operating income for the period.

The operating income is:

`I = Sales - Costs\\I = \$900,000-(\$100,000+\$250,000+\$100,000+\$125,000)\\I=\$325,000`

The operating income for May under absorption costing IS $325,000.