. Moore Company produces a single product. During last year, Moore’s variable production costs totaled $10,000...

. Moore Company produces a single product. During last year, Moore’s variable production costs totaled $10,000 and its fixed manufacturing overhead costs totaled $6,800. The company produced 5,000 units during the year and sold 4,600 units. There were no units in the beginning inventory. Which of the following statements is true? A. The net operating income under absorption costing for the year will be $800 higher than net operating income under variable costing. B. The net operating income under absorption costing for the year will be $544 higher than net operating income under variable costing. C. The net operating income under absorption costing for the year will be $544 lower than net operating income under variable costing. D. The net operating income under absorption costing for the year will be $800 lower than net operating income under variable costing.

Solutions

Expert Solution

Solution :

The Correct Answer is (B) The net operating income under absorption costing for the year will be $544 higher than net operating income under variable costing.

Working :

Under Absorption Costing, Fixed Manufacturing OH are included in Product Cost while in Variable Costing Fixed Manufacturing OH are charged directly to Income Statement. InAbsorption Costing, Fixed Manufacturing OH included in Ending Inventory will be deffred till they are sold while in variable costing full manufacturing OH $ 6,800 will be charged to Income Statement therefore Income under Variable Costing will less by the Fixed OH included in Ending Inventory.

Fixed Manufacturing OH inluded in Ending Inventory = $ 6,800 / 5,000 * 400 = $ 544

Income under variable costing will be lower by $ 544.as compare to Absorption Costing.

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ekkarill92 answered 1 year ago

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