Question

During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $5 per unit, Direct labor, $3 per unit, Variable overhead, $4 per unit, and Fixed overhead, $250,000. The company produced 25,000 units, and sold 20,000 units, leaving 5,000 units in inventory at year-end. Income calculated under variable costing is determined to be $315,000. How much income is reported under absorption costing? Group of answer choices $365,000 $290,000 $315,000 $265,000 $565,000

Answer 1

Answer:

424000

Explanation:

Answer: Net income under absorption costing = $424000

Explanation:

Given that,

Direct materials =$4 per unit

Direct labor = $2 per unit

Variable overhead = $3 per unit

Fixed overhead = $256,000

company produced = 32,000 units

company sold = 26,500 units

inventory at year-end =  5,500 units

Income under variable costing = $380,000

Total variable cost = (Direct materials+Direct labor +Variable overhead) × units produced

= (4+2+3) × 32000

=$288000

Per unit fixed cost =

=

= $8

Fixed cost on inventory = inventory at year-end × Per unit fixed cost

= 5500 × 8

= 44000

Net income under absorption costing = Income under variable costing + Fixed cost on inventory

= 380000 + 44000

=$424000

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