Truman Corporation The following information has been extracted from the financial records of Truman Corporation for its first year of operations:

Units produced 10,000

Units sold 7,000

Variable costs per unit:

Direct material $8

Direct labor 9

Manufacturing overhead 3

SG&A 4

Fixed costs:

Manufacturing overhead $70,000

SG&A 30,000

Refer to Truman Corporation.Based on absorption costing,Truman Corporation's income in its first year of operations will be A)$21,000 higher than it would be under variable costing. B)$70,000 higher than it would be under variable costing. C)$30,000 higher than it would be under variable costing. D)higher than it would be under variable costing,but the exact difference cannot be determined from the information given.

Question

Truman Corporation The following information has been extracted from the financial records of Truman Corporation for its first year of operations:

Units produced	10,000
Units sold	7,000
Variable costs per unit:
Direct material	$8
Direct labor	9
Manufacturing overhead	3
SG&A	4
Fixed costs:
Manufacturing overhead	$70,000
SG&A	30,000

Refer to Truman Corporation.Based on absorption costing,Truman Corporation's income in its first year of operations will be A)$21,000 higher than it would be under variable costing. B)$70,000 higher than it would be under variable costing. C)$30,000 higher than it would be under variable costing. D)higher than it would be under variable costing,but the exact difference cannot be determined from the information given.

Quizplus · Accepted Answer

Absorption costing includes fixed manufacturing overhead in the cost of goods sold, whereas variable costing only includes variable manufacturing costs. Based on the information provided, Truman Corporation had a fixed manufacturing overhead of $50,000, which would not be included in cost of goods sold under variable costing. Therefore, income under absorption costing would be higher by the amount of fixed manufacturing overhead, which is $21,000 ($50,000 fixed manufacturing overhead / 2,000 units produced).

Truman Corporation The Following Information Has Been Extracted from the Financial Records