Craft Company produces a single product. Last year, the company had a net operating income of $96,450 using absorption costing and $76,200 using variable costing. The fixed manufacturing overhead cost was $15 per unit. There were no beginning inventories. If 26,800 units were produced last year, then sales last year were:

a) 6,550 units

b) 25,450 units

c) 28,150 units

d) 47,050 units

Question

Aldo Jennings

Business

13 August, 23:04

Craft Company produces a single product. Last year, the company had a net operating income of $96,450 using absorption costing and $76,200 using variable costing. The fixed manufacturing overhead cost was $15 per unit. There were no beginning inventories. If 26,800 units were produced last year, then sales last year were:

a) 6,550 units

b) 25,450 units

c) 28,150 units

d) 47,050 units

+1

Answers (1)

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Checkers · Answer 1

The correct answer is B.

Explanation:

Giving the following information:

Last year, the company had a net operating income of $96,450 using absorption costing and $76,200 using variable costing. The fixed manufacturing overhead cost was $15 per unit. 26,800 units were produced last year.

Under the variable costing method, the product cost is calculated by the direct material, direct labor, and variable overhead. The total fixed costs are cost of the period.

Under absorption costing, the fixed manufacturing overhead are consider a product cost. Some of the fixed costs are allocated to ending inventory, making the net operating profit of the period higher.

The difference resides in the fixed overhead allocated to the units in ending inventory.

Ending inventory = (96,450 - 76,200) / 15 = 1,350 units

Sales = 26,800 - 1,350 = 25,450 units