Carr Company produces a single product. During the past year, Carr manufactured

Question

Carr Company produces a single product. During the past year, Carr manufactured 26,160 units and sold 20,900 units. Production costs for the year were as follows: Fixed manufacturing overhead $470,880 Variable manufacturing overhead $224,976 Direct labor $112,488 Direct materials $188,352 Sales totaled $971,850, variable selling expenses totaled $108,680, and fixed selling and administrative expenses totaled $190,968. There were no units in beginning inventory. Assume that direct labor is a variable cost. Under variable costing, the net income for the year would be: $32,086 lower than under absorption costing $32,086 higher than under absorption costing $94,680 lower than under absorption costing $94,680 higher than under absorption costing

Explanation / Answer

Hi, Please find the calculations as follows: =470880/26160 = 18 =18 *(26160 - 20900) = 94680 Since the production is higher than the units sold resulting in an increase in inventory, net income under variable costing will be lower than net income under absorption costing. Thanks, Aman

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