Vegas Company has the following unit costs:
$\begin{array}{llr}
\text { Variable manufacturing overhead } &\$25\
\text { Direct materials } &20\
\text { Direct labor} &19\
\text { Fixed manufacturing overhead} &12\
\text { Fixed marketing and administrative }&7
\end{array}$

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Vegas produced and sold 10,000 units. If the product sells for $100, what is the operating profit under full absorption costing?
A) $170,000
B) $240,000
C) $290,000
D) $360,000

Question

Vegas Company has the following unit costs:
$\begin{array}{llr}
  \text { Variable manufacturing overhead } &\$25\
 \text { Direct materials } &20\
 \text {  Direct labor} &19\
 \text {  Fixed manufacturing overhead} &12\
\text { Fixed marketing and administrative }&7
\end{array}$

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Vegas produced and sold 10,000 units. If the product sells for $100, what is the operating profit under full absorption costing?
A) $170,000
B) $240,000
C) $290,000
D) $360,000

Quizplus · Accepted Answer

Full absorption costing includes all manufacturing costs, both variable and fixed, in the unit cost of production. Therefore, the operating profit under full absorption costing is:Operating profit = (Selling price per unit - Unit cost) x Number of units sold= (100 - (25 + 20 + 19 + 12)) x 10,000= (100 - 76) x 10,000= 24 x 10,000= $240,000

Vegas Company Has the Following Unit Costs - Vegas Produced and Sold 10,000 Units

Vegas Company Has the Following Unit Costs -
Vegas Produced and Sold 10,000 Units