Question

Jeter Corporation had net income of $232,000 based on variable costing. Beginning and ending inventories were 8,000 units and 14,000 units, respectively. Assume the fixed overhead per unit was $6 for both the beginning and ending inventory. What is net income under absorption costing?a. $316,000b. $268,000c. $304,000d. $364,000e. $232,000

Answer 1

d. $364,000

Step-by-step explanation:

Net income under absorption costing is computed as;

= Net income under variable costing + [(Closing inventory - Opening inventory) × Fixed overhead per unit.

Given that;

Net income under variable costing = $232,000

Closing inventory = 14,000 units

Opening inventory = 8,000 units

Fixed overhead per unit = $6

Therefore,

Net income under absorption costing = $232,000 + [(14,000 + 8,000) × $6 ]

= $232,000 + $132,000

= $364,000

Net income under absorption costing is $364,000