Use the following information to answer this question. Harris Company produces a
ID: 2384627 • Letter: U
Question
Use the following information to answer this question.
Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000 units. Production costs for the year were as follows:
Production Cost Data
Direct materials
$153,000
Direct labor
$110,500
Variable manufacturing overhead
$204,000
Fixed manufacturing overhead
$255,000
Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct labor is a variable cost.
Under variable costing, the company's net operating income for the year would be _______ than under absorption costing.
A. $60,000 higher
B. $60,000 lower
C. $108,000 higher
D. $108,000 lower
Explanation / Answer
In this case, we know Production Cost Data is as follows Direct materials $153,000 Direct labor $110,500 Variable manufacturing overhead $204,000 Fixed manufacturing overhead $255,000 Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct labor is a variable cost. Therefore our answer is C Hope this helps