Question

A manufacturer reports the following information below for its first three years in operation.

Year 1 Year 2 Year 3

Income under variable costing $76,000 $109,000 $115,000
Beginning inventory (units) 0 800 500
Ending inventory (units) 800 500 0
Fixed manufacturing overhead per unit $8.00 $8.00 $8.00

Income for year 3 using absorption costing is:

a. $109,000
b. $117,000
c. $106,600
d. $115,000
e. $111,000

Answer 1

e. $111,000

Step-by-step explanation:

Absorption costing income for year 3 = Income under variable costing - {Beginning inventory (units) * Fixed manufacturing overhead per unit} + {Ending inventory (units) * Fixed manufacturing overhead per unit}

Absorption costing income for year 3 = 115,000 - (500*8) + (0*8)

= 115,000 - 4,000 + 0

= $111,000