Steve Harvey Company uses absorption costing and reports the following information:
Variances
$\begin{array} { l }
\text {Production Volume Variance }& \text {$ \$ 70,000 $ Unfavorable }\
\text {Flexible Budget Variance for Fixed Factory Overhead }& \text { $ \$ 100,000 $ Unfavorable}\
\text {Flexible Budget Variance for Variable Overhead }& \text { $ \$ 40,000 $ Favorable}\
\text {Flexible Budget Variance for Direct Materials }& \text { $ \$ 20,000 $ Favorable}\
\end{array}$

Before consideration of the above variances,the company has operating income of $1,500,000.What is the operating income after considering the above variances?
A) $1,330,000
B) $1,390,000
C) $1,400,000
D) $1,560,000

Question

Steve Harvey Company uses absorption costing and reports the following information:
Variances
$\begin{array} { l  }
 \text {Production Volume Variance }&  \text {$ \$ 70,000 $ Unfavorable }\
 \text {Flexible Budget Variance for Fixed Factory Overhead }&  \text { $ \$ 100,000 $ Unfavorable}\
 \text {Flexible Budget Variance for Variable Overhead }&  \text { $ \$ 40,000 $ Favorable}\
 \text {Flexible Budget Variance for Direct Materials }&  \text { $ \$ 20,000 $ Favorable}\
\end{array}$

Before consideration of the above variances,the company has operating income of $1,500,000.What is the operating income after considering the above variances?
A) $1,330,000
B) $1,390,000
C) $1,400,000
D) $1,560,000

Quizplus · Accepted Answer

The operating income after considering the variances is calculated by adjusting the initial operating income with the sum of the variances. The production volume variance and the flexible budget variance for fixed factory overhead are unfavorable, reducing the income by $70,000 and $100,000, respectively. The flexible budget variances for variable overhead and direct materials are favorable, increasing the income by $40,000 and $20,000, respectively. Therefore, the adjusted operating income is $1,500,000 - $70,000 - $100,000 + $40,000 + $20,000 = $1,390,000.

Steve Harvey Company Uses Absorption Costing and Reports the Following