Question

Net income under absorption costing is gross profit less Select one: a. cost of goods sold. b. fixed manufacturing overhead and fixed selling and administrative expenses. c. fixed manufacturing overhead and variable manufacturing overhead. d. variable selling and administrative expenses and fixed selling and administrative expenses.

Answer 1

Answer:

d. variable selling and administrative expenses and fixed selling and administrative expenses.

Explanation:

We know that,

The net income under absorption costing would be

= Sales - costs of goods sold - selling and administrative expenses

= Net income

The sales minus costs of goods sold equals to gross profit and  Gross profit minus selling and administrative expenses equals to net income

The costs of goods sold = Opening inventory + manufacturing cost - ending inventory

Manufacturing inventory = Direct material + direct labor + fixed manufacturing overhead + variable manufacturing overhead