Last year, Fabre Company produced 20,000 units and sold 18,000 units at a price of $12. Costs for last year were as follows:
Fixed factory overhead is applied based on expected production. Last year, Fabre expected to produce 20,000 units.
-Refer to Figure 8-1. What is operating income for last year under absorption costing?
A) $41,000
B) $67,520
C) $85,900
D) $111,300
E) $45,000

Question

Last year, Fabre Company produced 20,000 units and sold 18,000 units at a price of $12. Costs for last year were as follows:
  Fixed factory overhead is applied based on expected production. Last year, Fabre expected to produce 20,000 units.
-Refer to Figure 8-1. What is operating income for last year under absorption costing?
A) $41,000 
B) $67,520 
C) $85,900 
D) $111,300 
E) $45,000

Quizplus · Accepted Answer

Absorption costing includes all manufacturing costs (fixed and variable) in the cost of a product. Without the figure, the correct choice is based on typical calculations where operating income under absorption costing is higher than under variable costing when inventory increases.

Last Year, Fabre Company Produced 20,000 Units and Sold 18,000