Last year, Richmon Company produced 10,000 units and sold 6,000 units at a price of $20.Costs for last year were as follows:

Fixed factory overhead is applied based on expected production.Last year, Richmon expected to produce 10,000 units.
What is operating income for last year under absorption costing?
A) $39,000
B) $55,000
C) $63,100
D) $12,430
E) $29,340

Question

Last year, Richmon Company produced 10,000 units and sold 6,000 units at a price of $20.Costs for last year were as follows:  
 
 Fixed factory overhead is applied based on expected production.Last year, Richmon expected to produce 10,000 units.
What is operating income for last year under absorption costing?
A) $39,000 
B) $55,000 
C) $63,100 
D) $12,430 
E) $29,340

Quizplus · Accepted Answer

Units Ending Inventory = Units Beginning Inventory + Units Produced - Units Sold
= 0 + 10,000 - 6,000 = 4,000 units 
Unit product cost = (Direct materials + Direct labor + Variable overhead + Fixed overhead) ÷ Units produced
= ($30,000 + $38,000 + $8,000 + $40,000) / 10,000 = $11.60
Cost of Goods Sold (COGS)= Absorption Unit Product Cost × Units Sold = 10,000 × $11.60 = $116,000 
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Last Year, Richmon Company Produced 10,000 Units and Sold 6,000