Roosevelt Company reported the following information about the production and sales of its only product during its first month of operations: $\begin{array}{ll}
\text { Sales }(\$ 225 \text { per unit) } & \$ 360,000 \
\text { Direct materials used } & \$ 176,000 \
\text { Direct labor } & \$ 100,000 \
\text { Variable factory overhead } & \$ 44,000 \
\text { Fixed factory overhead } & \$ 80,000 \
\text { Variable s elling and administrative } & \$ 20,000 \
\text { expenses } &\\text { Fixed selling and adminis trative expenses }&\$10,000\
\text { Ending inventories: Direct materials }&-0-\\text { WIP } & -0- \
\text { Finished goods } & \mathbf{4 0 0} \text { units }
\end{array}$ The operating income (loss) under absorption costing is:

Question

Quizplus · Accepted Answer

Under absorption costing, all manufacturing costs (fixed and variable) are included in the cost of the product. The operating income is calculated by subtracting the cost of goods sold and selling and administrative expenses from sales revenue. The cost of goods sold includes direct materials, direct labor, variable factory overhead, and a portion of fixed factory overhead. The ending inventory of 400 units means some fixed overhead is deferred in inventory, affecting the income calculation.

Roosevelt Company Reported the Following Information About the Production and Sales