Question

# During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials,...

During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, \$5 per unit, Direct labor, \$2 per unit, Variable overhead, \$4 per unit, and Fixed overhead, \$324,000. The company produced 36,000 units, and sold 28,500 units, leaving 7,500 units in inventory at year-end. Income calculated under variable costing is determined to be \$400,000. How much income is reported under absorption costing?

Multiple Choice

• \$400,000

• \$332,500

• \$724,000

• \$467,500

• \$381,000

Urban Company reports the following information regarding its production cost:

 Units produced 35,000 units Direct labor \$ 28 per unit Direct materials \$ 33 per unit Variable overhead \$ 11 per unit Fixed overhead \$ 125,000 in total

Compute production cost per unit under variable costing.

Multiple Choice

• \$33.00

• \$64.57

• \$72.00

• \$28.00

• \$61.00

Question:1

Explanation:

1) Income under variable and absorption is different because under variable costing total fixed manufacturing overhead cost is considered but under absorption costing, fixed manufacturing overhead cost is considered in relating to units sold

2) Income under Absorption Costing = Income under variable costing - Proportionate Fixed Manufacturing costs

Income under Absorption Costing = \$400,000 - [ \$ 324,000 / 36000 * 7500] = \$ 332,500

Question:2

Explanation:

Production cost per unit under variable costing = Total Variable cost = 28 +33 +11 = 72

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