H3 Co. is a farming corporation that grows and sells sugar beets. The company is publicly traded on the stock market: however, management prefers to use variable costing for decision purposes. The company's books are adjusted to arrive at Absorption Income for financial reporting purposes. The company reported the following financial information for the past month:
The company tracks harvested crops that have not yet been shipped out as "in-process." This inventory of sugar beets increased from the equivalent of 50 full truckloads at the beginning of the month to 70 full truckloads at the end of the month.
What was Absorption Net Income?
A) $1,988,000
B) $2,012,000
C) $1,990,000
D) $2,020,000
E) None of the above

Question

H3 Co. is a farming corporation that grows and sells sugar beets. The company is publicly traded on the stock market: however, management prefers to use variable costing for decision purposes. The company's books are adjusted to arrive at Absorption Income for financial reporting purposes. The company reported the following financial information for the past month:
 The company tracks harvested crops that have not yet been shipped out as "in-process." This inventory of sugar beets increased from the equivalent of 50 full truckloads at the beginning of the month to 70 full truckloads at the end of the month.
What was Absorption Net Income?
A) $1,988,000 
B) $2,012,000 
C) $1,990,000 
D) $2,020,000 
E) None of the above

Quizplus · Accepted Answer

Absorption Income =
Variable Income + (difference between Ending and Beginning Inventory) × Fixed Overhead/unit
Ending - Beginning Inventory = 70 - 50 = 20
Absorption Income = $2,000,000 + (20 units × $500/unit) = $2,010,000

H3 Co Is a Farming Corporation That Grows and Sells Sugar