Question

A company had net income of $50,000 under variable costing. Beginning and ending inventories were 400 units and 500 units, respectively. Fixed overhead per unit was $10 for beginning inventory and $12 for ending inventory. Convert net income under variable costing to net income under absorption costing. What is net income under absorption costing?

Answer 1

$52,000

Step-by-step explanation:

Net income under variable costing considers only variable cost, while net income under absorption costing considers both variable and fixed cost. Therefore, we have:

Total beginning fixed overhead = 400 × $10 = $4,000

Total ending fixed overhead = 500 × $12 =$6,000

Fixed overhead for the period = $6,000 - $4,000 = $2,000

Net income under absorption costing = $50,000 + $2,000 = $52,000