A company had income of $50,000 using variable costing for a given period. Beginning and ending inventories for that period were 80,000 units and 90,000 units, respectively. If the fixed overhead application rate were $10.00 per unit, what would operating income have been using full costing?

Question

Quizplus · Accepted Answer

To calculate operating income using full costing, we need to include both variable and fixed manufacturing costs in the cost of goods sold.

Variable manufacturing cost = Beginning Inventory + Purchases – Ending Inventory = 80,000 units + (90,000 units - 80,000 units) = 90,000 units

Fixed manufacturing cost = Fixed overhead application rate * Number of units produced 
= $10.00 per unit * [(80,000 units + 90,000 units)/2] 
= $10.00 per unit * 85,000 units 
= $850,000

Total manufacturing cost = Variable manufacturing cost + Fixed manufacturing cost 
= $50,000 + $850,000 
= $900,000

Operating income using full costing = Sales revenue - Total manufacturing cost 
= $50,000 - $900,000 
= ($850,000)

Therefore, the correct answer is C) $150,000.

A Company Had Income of $50,000 Using Variable Costing for a Given