Andy's Water Pets Inc. makes 100-gallon plexiglass aquariums. They reported the following financial information for last year:
Assume that the fixed costs were the same on a per-unit basis during the prior period.
What would Operating Income be under absorption costing? (Round per-unit costs to the nearest cent.)
A) $180,510
B) $227,490
C) $183,000
D) $225,000
E) None of the above

Question

Andy's Water Pets Inc. makes 100-gallon plexiglass aquariums. They reported the following financial information for last year:
 Assume that the fixed costs were the same on a per-unit basis during the prior period.
What would Operating Income be under absorption costing? (Round per-unit costs to the nearest cent.)
A) $180,510 
B) $227,490 
C) $183,000 
D) $225,000 
E) None of the above

Quizplus · Accepted Answer

Absorption Income = Variable Income + (change in inventory units × Fixed Overhead/unit)
Production - Sales = 12,000 - 15,000 = -3,000
Total fixed overhead = $50,000 salary + $24,000 rent + $10,000 depreciation = $84,000
Fixed overhead / unit = $84,000/12,000 units = $7.00/unit
Absorption Income = $204,000 + (-3,000 units × $7.00/unit) = $183,000