During the last year,Hansen Company had operating income under absorption costing that was $5,500 lower than its operating income under variable costing.The company sold 9,000 units during the year,and its variable costs were $10 per unit,of which $6 was variable selling expense.If fixed production cost is $5 per unit under absorption costing every year,how many units did the company produce during the year?
A) 7,625 units.
B) 7,900 units.
C) 8,450 units.
D) 10,100 units.

Question

Quizplus · Accepted Answer

Under absorption costing, fixed production costs are included in the cost of goods sold calculation. Therefore, the difference in operating income between absorption costing and variable costing is equal to the difference in fixed production costs between the two methods.

Using the information given:

Variable costing operating income = Absorption costing operating income + $5,500

Variable costing operating income = (9,000 units x $10 variable cost per unit) - (9,000 units x $6 variable selling expense per unit)

Variable costing operating income = $54,000 - $54,000 = $0

Absorption costing operating income = $5,500

$5,500 = (9,000 units x $5 fixed production cost per unit)

9,000 units = 7,900 units + (1,000 units x $5 fixed production cost per unit)

Therefore, the company produced 7,900 units during the year.

During the Last Year,Hansen Company Had Operating Income Under Absorption