Question

Mortech had net income of $246,000 based on variable costing. Beginning and ending inventories were 46,000 units and 45,000 units, respectively. Assume the fixed overhead per unit was $0.50 for both the beginning and ending inventory. What is net income under absorption costing?

Answer 1

$245,500

Step-by-step explanation:

Given that;

Net income based on variable costing = $246,000

Beginning inventories = 46,000 units

Ending inventories = 45,000 units

Fixed overhead per unit = $0.50

Inventory = (Beginning inventories - Ending inventories) × Fixed overhead per unit

= (46,000 units - 45,000 units) × $0.50

= 1,000 units × $0.50

= $500

Net income under absorption costing

= Net income based on variable costing - Inventory

= $246,000 - $500

= $245,500