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 takes into account all manufacturing costs, including variable and fixed costs. Using the formula for absorption costing, Total cost of goods sold = Direct materials + Direct labor + Manufacturing overhead + Beginning inventory – Ending inventory, we get:

Total cost of goods sold = $90,000 + $100,000 + $110,000 + $20,000 – $15,000 = $305,000

Since the question asks for income, we deduct the Cost of goods sold from total revenues:

Income = Total revenues – Cost of goods sold = $605,000 – $305,000 = $300,000

Therefore, the correct answer is (C) $300,000.

A Manufacturer Reports the Following Information Below for Its First