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12 November, 14:24

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

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  1. 12 November, 14:36
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    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
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Home » Business » 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.
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