Question

Direct materials, $7 per unit, Direct labor, $5 per unit, Variable overhead, $6 per unit, and Fixed overhead, $270,000. The company produced 27,000 units, and sold 18,500 units, leaving 8,500 units in inventory at year-end. Income calculated under variable costing is determined to be $355,000. How much income is reported under absorption costing

Answer 1

Answer:

Income reported under absorption costing =$440,000

Explanation:

The income reported under absorption costing can be determined by  adjusting the income under variable costing for difference in profit.

The steps are outlined below:

Step 1

Calculate the Overhead absorption rate

OAR = Budgeted Fixed overhead/ Budgeted number of units

=  $270,000/ 27,000 units

= $10

Step 2

Calculate the change in inventory

8500 units (given)

Step 3

Calculate the difference in profit =

Difference in profit = OAR × change in inventory

=8500×$10

= $85000

Step 4

Calculate Income under absorption costing

=  Income under variable costing +  Difference in profit

=$85,000 + $355,000

=$440,000

Income reported under absorption costing =$440,000

Answer 2

Answer:

$440,000

Step by Step Explanation:

Therefore:

Fixed overhead/company produced unit

 $270,000/ 27,000 units = $10

8500×$10= $85000

=$85,000 + $355,000

=$440,000

Hence; the Income reported under absorption costing is =$440,000