Chino began business at the start of the current year.The company planned to produce 25,000 units,and actual production conformed to expectations.Sales totaled 22,000 units at $30 each.Costs incurred were:
If there were no variances,the company's absorption-costing income would be:
A)$190,000.
B)$202,000.
C)$208,000.
D)$220,000.
E)some other amount.

Question

Chino began business at the start of the current year.The company planned to produce 25,000 units,and actual production conformed to expectations.Sales totaled 22,000 units at $30 each.Costs incurred were: 
If there were no variances,the company's absorption-costing income would be:
A)$190,000. 
B)$202,000. 
C)$208,000. 
D)$220,000. 
E)some other amount.

Quizplus · Accepted Answer

The absorption costing income can be calculated as follows:

Total manufacturing cost per unit = Direct materials + Direct labor + Variable manufacturing overhead + Fixed manufacturing overhead / Number of units produced
Total manufacturing cost per unit = $6 + $3 + $1 + ($480,000 / 25,000) = $6 + $3 + $1 + $19.20 = $29.20

Total cost of goods sold = Number of units sold x Total manufacturing cost per unit
Total cost of goods sold = 22,000 x $29.20 = $642,400

Gross profit = Sales - Cost of goods sold
Gross profit = ($30 x 22,000) - $642,400 = $187,600

Absorption costing income = Gross profit - Fixed manufacturing overhead
Absorption costing income = $187,600 - $480,000 = $208,400

Therefore, the answer is C) $208,000.

Chino Began Business at the Start of the Current Year