Locklear,Inc.reports the following information for the year ended December 31: $$\begin{array} { | l | r | l | }
\hline \text { Units sold } & 620 & \text { units } \
\hline \text { Sales price } & \$ 130 & \text { per unit } \
\hline \text { Direct materials } & \$ 28 & \text { per unit } \
\hline \text { Direct labor } & \$ 8 & \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 13 & \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 12 & \text { per unit } \
\hline \text { Variable selling and administrative costs } & \$ 6 & \text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 12,600 & \text { per year } \
\hline
\end{array}$$ The operating income calculated using variable costing and absorption costing amounted to $10,000 and $12,700,respectively.There were no beginning inventories.Determine the total fixed manufacturing overhead that will be expensed under absorption costing for the year.
A)$10,140
B)$7440
C)$24,800
D)$30,380

Question

Locklear,Inc.reports the following information for the year ended December 31: $$\begin{array} { | l | r | l | } 
\hline \text { Units sold } & 620 & \text { units } \
\hline \text { Sales price } & \$ 130 & \text { per unit } \
\hline \text { Direct materials } & \$ 28 & \text { per unit } \
\hline \text { Direct labor } & \$ 8 & \text { per unit } \
\hline \text { Variable manufacturing overhead } & \$ 13 & \text { per unit } \
\hline \text { Fixed manufacturing overhead } & \$ 12 & \text { per unit } \
\hline \text { Variable selling and administrative costs } & \$ 6 & \text { per unit } \
\hline \text { Fixed selling and administrative costs } & \$ 12,600 & \text { per year } \
\hline
\end{array}$$ The operating income calculated using variable costing and absorption costing amounted to $10,000 and $12,700,respectively.There were no beginning inventories.Determine the total fixed manufacturing overhead that will be expensed under absorption costing for the year.
A)$10,140
B)$7440
C)$24,800
D)$30,380

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead is included in the cost of goods sold. The difference between operating incomes calculated using variable costing and absorption costing is due to the difference in fixed manufacturing overhead expensed.

Variable Costing Operating Income = $10,000 
Absorption Costing Operating Income = $12,700

Fixed Manufacturing Overhead Expensed under Absorption Costing = Absorption Costing Operating Income - Variable Costing Operating Income
Fixed Manufacturing Overhead Expensed under Absorption Costing = $12,700 - $10,000
Fixed Manufacturing Overhead Expensed under Absorption Costing = $2,700

Since there were no beginning inventories, total fixed manufacturing overhead for the year is equal to the fixed manufacturing overhead expensed under absorption costing, which is $2,700.

Therefore, the correct answer is B) $7,440.

Locklear,Inc The Operating Income Calculated Using Variable Costing and Absorption Costing