Ramon Company reported the following units of production and sales for June and July: Income under absorption costing for June was $40,000; income under variable costing for July was $50,000.Fixed costs were $600,000 for each month.

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How much was income for July using absorption costing?
A) $50,000
B) $20,000
C) $80,000
D) $40,000

Question

Ramon Company reported the following units of production and sales for June and July: Income under absorption costing for June was $40,000; income under variable costing for July was $50,000.Fixed costs were $600,000 for each month.

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How much was income for July using absorption costing?

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How much was income for July using absorption costing?
A) $50,000 
B) $20,000 
C) $80,000 
D) $40,000

Quizplus · Accepted Answer

SUPPORTING CALCULATIONS:
Calculate the difference in income between costing methods by taking Fixed Cost per unit times the change in inventory:
($600,000 / 100,000) × 5,000 = $30,000
 
Absorption costing is lower by $30,000.Therefore, $50,000 less $30,000 equals a profit of $20,000.

Ramon Company Reported the Following Units of Production and Sales