During the most recent year,Evans Company had operating income of $90,000 using absorption costing and $84,000 using variable costing.The fixed manufacturing overhead application rate was $6 per unit.There were no beginning inventories.If 22,000 units were produced last year,what were the sales in units for last year?
A) 15,000 units.
B) 21,000 units.
C) 23,000 units.
D) 28,000 units.

Question

Quizplus · Accepted Answer

The difference between absorption costing and variable costing incomes is due to the fixed manufacturing overhead included in the inventory under absorption costing. The difference of $6,000 ($90,000 - $84,000) represents the fixed overhead deferred in inventory under absorption costing. With a fixed overhead rate of $6 per unit, this implies 1,000 units ($6,000 / $6 per unit) were produced but not sold. Since 22,000 units were produced and 1,000 units were not sold, 21,000 units must have been sold.

During the Most Recent Year,Evans Company Had Operating Income of $90,000