Morwenna, Inc. reports the following information for August: $$\begin{array} { | l | r | }
\hline \text { Sales Revenue } & \$ 900,000 \
\hline \text { Variable Cost of Goods Sold } & 120,000 \
\hline \text { Fixed Cost of Goods Sold } & 60,000 \
\hline \text { Variable Selling and Administrative Costs } & 150,000 \
\hline \text { Fixed Selling and Administrative Costs } & 50,000 \
\hline
\end{array}$$ Calculate the operating income for August using absorption costing.
A) $520,000
B) $270,000
C) $1,100,000
D) $380,000

Question

Morwenna, Inc. reports the following information for August: $$\begin{array} { | l | r | } 
\hline \text { Sales Revenue } & \$ 900,000 \
\hline \text { Variable Cost of Goods Sold } & 120,000 \
\hline \text { Fixed Cost of Goods Sold } & 60,000 \
\hline \text { Variable Selling and Administrative Costs } & 150,000 \
\hline \text { Fixed Selling and Administrative Costs } & 50,000 \
\hline
\end{array}$$ Calculate the operating income for August using absorption costing.
A) $520,000
B) $270,000
C) $1,100,000
D) $380,000

Quizplus · Accepted Answer

Under absorption costing, all manufacturing costs (both variable and fixed) are included in the cost of goods sold. The calculation is as follows: Sales Revenue - (Variable Cost of Goods Sold + Fixed Cost of Goods Sold + Variable Selling and Administrative Costs + Fixed Selling and Administrative Costs) = Operating Income. Therefore, $900,000 - ($120,000 + $60,000 + $150,000 + $50,000) = $520,000.

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