The company is considering using either super-variable costing or an absorption costing system that assigns $25 of direct labor cost and $56 of fixed manufacturing overhead to each unit that is produced. Which of the following statements is true regarding the net operating income in the first year?
A)Super-variable costing net operating income exceeds absorption costing net operating income by $486,000.
B)Absorption costing net operating income exceeds super-variable costing net operating income by $336,000.
C)Absorption costing net operating income exceeds super-variable costing net operating income by $486,000.
D)Super-variable costing net operating income exceeds absorption costing net operating income by $336,000.

Question

Quizplus · Accepted Answer

The question provides insufficient information regarding the variable and fixed costs per unit under the super-variable costing system. However, we can make an assumption that the variable cost per unit is less than $25 since the super-variable costing system is designed to assign only direct variable costs to each unit produced. This would mean that under the super-variable costing system, the cost per unit would be less than $81 (direct materials + direct labor + variable overhead of $0) assigned under the absorption costing system. Therefore, the net operating income under the absorption costing system would be higher than the net operating income under the super-variable costing system, leading to choice C being the correct answer.

The Company Is Considering Using Either Super-Variable Costing or an Absorption