Question

Heinrich Co. incurred fixed manufacturing costs of $6,000 during 20X5. Other information for 20X5 includes: The budgeted denominator level is 1,000 units. Units produced total 750 units. Units sold total 600 units. Beginning inventory was zero. The company uses absorption costing and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold. Operating income using absorption costing will be ________ than operating income if using variable costing.

Answer 1

The net operating income in the given period will be higher using absorption costing.

Step-by-step explanation:

Giving the following information:

Fixed manufacturing vosts= $6,000

The budgeted denominator level is 1,000 units.

Units produced total 750 units.

Units sold total 600 units.

The absorption costing method includes all costs related to production, both fixed and variable. The unit product cost is calculated using direct material, direct labor, and total unitary manufacturing overhead.

The units that weren't sold would carry fixed manufacturing costs to ending inventory. Therefore, the net operating income in the given period will be higher in absorption costing.