Question

Mortech Company had net income of $250,000 based on variable costing. Beginning and ending inventories were 50,000 units and 48,000 units, respectively. Assume the fixed overhead per unit was $0.75 for both the beginning and ending inventory. What is net income under absorption costing?

Answer 1

Answer:

Net income under absorption costing would be $ 250,000

Explanation:

Mortech Company

Net Income variable costing  $250,000

Variable Costing                             Absorption Costing

Sales                                                 Sales

Less Variable Costs                         Less Product Costs ( Variable + Fixed)

Contribution Margin                        Gross Profit

Less Fixed Costs                            Less Period Costs ( Variable +fixed)

Net Profit                                           Net Profit

Net income under both the methods remains the same unless there is a difference in fixed costs for certain items.