A company's operating income was $70,000 using variable costing for a given period. Beginning and ending inventories for that period were 45,000 units and 50,000 units, respectively. Ignoring income taxes, if the fixed factory overhead application rate was $8.00 per unit, what would operating income have been using full costing?

Question

Quizplus · Accepted Answer

Using full costing, fixed overhead costs are included in the cost of goods sold. The total fixed overhead applied would be $8.00 x 50,000 units = $400,000. We would subtract the beginning inventory at full cost of $8.00 x 45,000 units = $360,000 to get the cost of goods sold of $440,000. Operating income would be: 
Sales Revenue - Cost of Goods Sold - Fixed Overhead = Operating Income
If the operating income from variable costing was $70,000, then the operating income using full costing would be: 
Operating Income (Full Costing) = $70,000 - ($440,000 - $400,000) = $110,000. Therefore, the answer is C).

A Company's Operating Income Was $70,000 Using Variable Costing for a Given