Canyon reported $106,000 of net income for the year by using variable costing. T

Question

Canyon reported $106,000 of net income for the year by using variable costing. The company had no beginning inventory, planned and actual production of 50,000 units, and sales of 47,000 units. Standard variable manufacturing costs were $15 per unit, and total budgeted fixed manufacturing overhead was $150,000. If there were no variances, net income under absorption costing would be:
A. $52,000.
B. $97,000.
C. $106,000.
D. $115,000.
E. $160,000.

Please show work so that I can apply this to another problem. Thanks!

Explanation / Answer

Hi,

Please find the answer as follows;

Calculating Sales with the use of Variable Costing Income Statement

Sales = 106000 (Operating Income) + 150000 (Fixed Cost) + 47000*15 (Variable Cost) = 961000

Calculating Income under Absorbtion Costing

Answer is 115000 (Option D)

Thanks.

Sales 961000 Less Manufacturing Costs
Variable Cost (50000*15) 750000 Fixed Cost 150000 Less Ending Inventory (750000 + 150000)*3000/50000 54000 Total Cost of Goods Sold
846000 Net Income (961000 - 846000) 115000

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