Focus Picture Company sold 5,600 units and produced 6,000 units this past year.
ID: 2458548 • Letter: F
Question
Focus Picture Company sold 5,600 units and produced 6,000 units this past year. Unit variable costs were $15 (including variable selling costs of $3), and total fixed manufacturing costs totaled $16,500. Which costing system (variable or absorption) will show a higher net income and by how much?
a) absorption costing, $1,100
b) variable costing, $1,100
c) absorption costing $17,600
d) cannot be determined from the information given
I know the correct answer is A, but I'm more interested in how to get the answer. Thanks!
Explanation / Answer
Fixed cost under variable costing = $16500
Fixed cost under absorption costing = 16500/6000 x 5600 = $15400
Thus absorption costing system will show a higher net income by $1100
Thus answer will be a).