Dentofax Inc.reports the following information for August: Calculate the operating income for August using absorption costing.
A)$275,000
B)$350,000
C)$425,000
D)$525,000

Question

Dentofax Inc.reports the following information for August:  Calculate the operating income for August using absorption costing.
A)$275,000 
B)$350,000 
C)$425,000 
D)$525,000

Quizplus · Accepted Answer

To calculate the operating income using absorption costing, we need to use the following formula:

Revenue - Cost of Goods Sold (COGS) - Selling and Administrative Expenses = Operating Income

From the given information, we can calculate the revenue and COGS as follows:

Revenue = (10,000 units x $150 per unit) = $1,500,000
COGS = (10,000 units x $70 variable cost per unit) + ($350,000 fixed manufacturing cost / 10,000 units) = $1,050,000

We are given the selling and administrative expenses as $175,000.

Plugging these values into the formula, we get:

$1,500,000 - $1,050,000 - $175,000 = $275,000

Therefore, the correct answer is A) $275,000.