Figure 7-4
The following information pertains to Stark Ltd.:
$$\begin{array} { l r }
\text { Beginning inventory } & 0 \text { units } \
\text { Ending inventory } & 5,000 \text { units } \
\text { Direct labour per unit } & £ 20 \
\text { Direct materials per unit } & 16 \
\text { Variable overhead per unit } & 4 \
\text { Fixed overhead per unit } & 10 \
\text { Variable selling costs per unit } & 12 \
\text { Fixed selling costs per unit } & 16
\end{array}$$
-Refer to Figure 7-4. Absorption costing net income would be ____ the variable costing net income.
A)£50,000 greater than
B)£70,000 greater than
C)£70,000 less than
D)£50,000 less than

Question

Figure 7-4
The following information pertains to Stark Ltd.:
$$\begin{array} { l r } 
\text { Beginning inventory } & 0 \text { units } \
\text { Ending inventory } & 5,000 \text { units } \
\text { Direct labour per unit } & £ 20 \
\text { Direct materials per unit } & 16 \
\text { Variable overhead per unit } & 4 \
\text { Fixed overhead per unit } & 10 \
\text { Variable selling costs per unit } & 12 \
\text { Fixed selling costs per unit } & 16
\end{array}$$
-Refer to Figure 7-4. Absorption costing net income would be ____ the variable costing net income.
A)£50,000 greater than
B)£70,000 greater than
C)£70,000 less than
D)£50,000 less than

Quizplus · Accepted Answer

Under absorption costing, fixed overhead is included in the cost of inventory, so when inventory increases, some fixed overhead costs are deferred in inventory. With an ending inventory of 5,000 units and fixed overhead of £10 per unit, £50,000 of fixed overhead costs are deferred, making absorption costing net income £50,000 greater than variable costing net income.

Figure 7-4 the Following Information Pertains to Stark Ltd -Refer to Figure 7-4

Figure 7-4
the Following Information Pertains to Stark Ltd -Refer to Figure 7-4