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 overhead application rate was $8.00 per unit,what would operating income have been using full costing?

Question

Quizplus · Accepted Answer

Full costing includes all costs incurred in the production of a product, including fixed overhead costs. To calculate the operating income using full costing, we need to add the fixed overhead costs to the variable costs. 
Variable cost per unit = Operating income / (Ending inventory - Beginning inventory) = $70,000 / (50,000 - 45,000) = $14
Fixed overhead cost per unit = $8 
Total cost per unit = $14 + $8 = $22 
Operating income using full costing = Total revenue - Total cost = (50,000 units x $22 per unit) - (50,000 units x $14 per unit) = $1,100,000 - $700,000 = $400,000 
Therefore, the operating income using full costing is $400,000, and the best choice is C.

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