Use this information for Timmer Corporation to answer the questions that follow.

Timmer Corporation just started business in January. There were no beginning inventories. During the year, it manufactured 12,000 units of product and sold 10,000 units. The selling price of each unit was $20. Variable manufacturing costs were $4 per unit, and variable selling and administrative costs were $2 per unit. Fixed manufacturing costs were $24,000, and fixed selling and administrative costs were $6,000.

-What would Timmer's net income be for the year using absorption costing?
A) $114,000
B) $110,000
C) $4,000
D) $106,000

Question

Use this information for Timmer Corporation to answer the questions that follow.

Timmer Corporation just started business in January. There were no beginning inventories. During the year, it manufactured 12,000 units of product and sold 10,000 units. The selling price of each unit was $20. Variable manufacturing costs were $4 per unit, and variable selling and administrative costs were $2 per unit. Fixed manufacturing costs were $24,000, and fixed selling and administrative costs were $6,000.

-What would Timmer's net income be for the year using absorption costing?
A) $114,000
B) $110,000
C) $4,000
D) $106,000

Quizplus · Accepted Answer

Under absorption costing, all manufacturing costs (variable and fixed) are included in the cost of the product. The cost per unit is $6 ($4 variable + $2 fixed per unit, where fixed manufacturing cost per unit is $24,000/12,000 units). The cost of goods sold for 10,000 units is $60,000 (10,000 units x $6). Sales revenue is $200,000 (10,000 units x $20). Gross profit is $140,000 ($200,000 - $60,000). Subtract variable selling and administrative costs ($20,000) and fixed selling and administrative costs ($6,000) to get a net income of $114,000.

Use This Information for Timmer Corporation to Answer the Questions