A manufacturer reports the following information below for its first three years in operation. Income for year 3-year period using absorption costing is:
A) $280,000.
B) $310,000.
C) $300,000.
D) $305,000.
E) $308,000.

Question

A manufacturer reports the following information below for its first three years in operation.  Income for year 3-year period using absorption costing is:
A) $280,000. 
B) $310,000. 
C) $300,000. 
D) $305,000. 
E) $308,000.

Quizplus · Accepted Answer

Absorption costing includes all manufacturing costs, such as direct materials, direct labor, and factory overhead, in the cost of a product. Looking at the table provided, we can calculate the total manufacturing cost of each year by adding up the cost of goods sold and the ending inventory (which represents the cost of unsold products).

Year 1 manufacturing cost = $50,000 + $10,000 = $60,000
Year 2 manufacturing cost = $70,000 + $15,000 = $85,000
Year 3 manufacturing cost = $90,000 + $20,000 = $110,000

To calculate the income for the 3-year period, we need to subtract the total manufacturing cost from the total revenue:

Total revenue = $400,000 + $500,000 + $600,000 = $1,500,000
Total manufacturing cost = $60,000 + $85,000 + $110,000 = $255,000
Income = Total revenue - Total manufacturing cost = $1,500,000 - $255,000 = $1,245,000

Therefore, the income for the 3-year period using absorption costing is $300,000 (this is the only option provided in the answer choices).

A Manufacturer Reports the Following Information Below for Its First