Question

Assume a company produced 12,500 units and sold 11,500 units in its first year of operations....

Assume a company produced 12,500 units and sold 11,500 units in its first year of operations. It also reported absorption costing net operating income of $40,000 and variable costing net operating income of $28,000. How much fixed manufacturing overhead per unit must be included in the company’s absorption costing unit product cost?

Multiple Choice

  • $10

  • $12

  • $14

  • $16

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Answer #1

Answer - $12

Fixed manufacturing overhead

= absorption costing net operating income - variable costing net operating income

= $40,000 -$28,000

= $12,000

Ending inventory = 1000 (12,500 - 11,500)

Fixed manufacturing overhead per unit

= fixed manufacturing overhead / ending inventory units

= $12,000 / 1000

= $12

Note:

Absorption costing net operating income is more than variable costing net operating income, because under absorption costing fixed manufacturing overhead are treated as Product cost but under variable costing fixed manufacturing overhead are treated as period cost.

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