Dentofax,Inc.reports the following information for August: $$\begin{array} { | l | r | }
\hline \text { Sales Revenue } & \$ 700,000 \
\hline \text { Variable Cost of Goods Sold } & 180,000 \
\hline \text { Fixed Cost of Goods Sold } & 40,000 \
\hline \text { Variable Selling and Administrative Costs } & 180,000 \
\hline \text { Fixed Selling and Administrative Costs } & 70,000 \
\hline
\end{array}$$ Calculate the operating income for August using absorption costing.
A) $230,000
B) $360,000
C) $950,000
D) $470,000

Question

Dentofax,Inc.reports the following information for August: $$\begin{array} { | l | r | } 
\hline \text { Sales Revenue } & \$ 700,000 \
\hline \text { Variable Cost of Goods Sold } & 180,000 \
\hline \text { Fixed Cost of Goods Sold } & 40,000 \
\hline \text { Variable Selling and Administrative Costs } & 180,000 \
\hline \text { Fixed Selling and Administrative Costs } & 70,000 \
\hline
\end{array}$$ Calculate the operating income for August using absorption costing.
A) $230,000
B) $360,000
C) $950,000
D) $470,000

Quizplus · Accepted Answer

Under absorption costing, all manufacturing costs (both variable and fixed) are considered product costs and are included in the cost of goods sold. The operating income is calculated as follows: Sales Revenue - Cost of Goods Sold (Variable + Fixed) - Selling and Administrative Costs (Variable + Fixed) = Operating Income. So, $700,000 - ($180,000 + $40,000) - ($180,000 + $70,000) = $230,000.

Dentofax,Inc Calculate the Operating Income for August Using Absorption Costing