misslynz
Oct 9, 2006, 04:19 PM
I can't figure out how to come up with the right answer. Could you please help?
The Collins Corporation just started business in January of 2004. They had no beginning inventories. During 2004 they manufactured 12,000 units of product, and sold 10,000 units. The selling price of each unit was $20. Variable manufacturing costs were $4 per unit, and variable selling and administrative costs were $2 per unit. Fixed manufacturing costs were $24,000 and fixed selling and administrative costs were $6,000. What would be the Collins Corporations Net income for 2004 using absorption costing?
a. $114,000
b. $110,000
c. $4,000
d. $106,000
e. $140,000
The correct answer is (A). Under variable costing, all fixed manufacturing overhead costs are expensed in the period incurred. Under absorption costing, only $20,000 of fixed overhead is expensed.
The Collins Corporation just started business in January of 2004. They had no beginning inventories. During 2004 they manufactured 12,000 units of product, and sold 10,000 units. The selling price of each unit was $20. Variable manufacturing costs were $4 per unit, and variable selling and administrative costs were $2 per unit. Fixed manufacturing costs were $24,000 and fixed selling and administrative costs were $6,000. What would be the Collins Corporations Net income for 2004 using absorption costing?
a. $114,000
b. $110,000
c. $4,000
d. $106,000
e. $140,000
The correct answer is (A). Under variable costing, all fixed manufacturing overhead costs are expensed in the period incurred. Under absorption costing, only $20,000 of fixed overhead is expensed.