A manufacturer reports the following information below for its first three years in operation. Income for year 1 using absorption costing is:
A) $76,000.
B) $82,400.
C) $88,800.
D) $106,600.
E) $111,000.

Question

A manufacturer reports the following information below for its first three years in operation.  Income for year 1 using absorption costing is:
A) $76,000. 
B) $82,400. 
C) $88,800. 
D) $106,600. 
E) $111,000.

Quizplus · Accepted Answer

To calculate the income for year 1 using absorption costing, we need to find the total manufacturing cost and then deduct it from the total sales revenue. 
Total manufacturing cost = Direct materials + Direct labor + Manufacturing overhead
Year 1:
Direct materials = $25,000
Direct labor = $14,000
Manufacturing overhead (applied at $10 per machine hour) = $37,000
Total manufacturing cost = $25,000 + $14,000 + $37,000 = $76,000
Total sales revenue (based on sales of 8,000 units at $18 per unit) = 8,000 x $18 = $144,000
Income using absorption costing = Total sales revenue - Total manufacturing cost = $144,000 - $76,000 = $68,000
Therefore, the correct option is B.

A Manufacturer Reports the Following Information Below for Its First