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21 June, 06:21

During its first year of operations, the McCormick Company incurred the following manufacturing costs: 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. 21 June, 06:32
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    The income under Absorption and Variable Costing would be the same However Contribution Margin would be different.

    The income under absorption costing would be the same as the contribution margin under absorption costing.

    But contribution margin under variable costing would be different than income under variable costing.

    Income Under Variable Costing $355,000

    Income Under Absorption Costing $355,000

    Explanation:

    The income under Absorption and Variable Costing would be the same However Contribution Margin would be different.

    McCormick Company

    Absorption Costing Income Statement

    Sales 18,500 units, $ 292,000

    Direct materials, $7 per unit, * 18,500 = $ 129,500

    Direct labor, $5 per unit,*18,500 = $ 92,500

    Variable overhead, $6 per unit, * 18,500 = $ 111,000

    Less Fixed overhead, $270,000

    Income Under Absorption Costing $355,000

    McCormick Company

    Variable Costing Income Statement

    Sales 18,500 units, $ 292,000

    Direct materials, $7 per unit, * 18,500 = $ 129,500

    Direct labor, $5 per unit,*18,500 = $ 92,500

    Variable overhead, $6 per unit, * 18,500 = $ 111,000

    Contribution Margin $ 625,000

    Less Fixed overhead, $270,000

    Income Under Variable Costing $355,000
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