Leeds Electronics, which has only one product, has provided the following data concerning its most recent month of operations:
-The market price for direct materials was lower last month. The normal cost of direct materials is £26.
What is the net operating income for the month under absorption costing if the cost of direct material is £26?

A)£(8,700)
B)£0
C)£12,400
D)(£1,000)

Question

Leeds Electronics, which has only one product, has provided the following data concerning its most recent month of operations:
-The market price for direct materials was lower last month. The normal cost of direct materials is £26.
What is the net operating income for the month under absorption costing if the cost of direct material is £26?

A)£(8,700) 
B)£0 
C)£12,400 
D)(£1,000)

Quizplus · Accepted Answer

Under absorption costing, the net operating income is not directly affected by changes in the market price of direct materials if the cost used in calculations remains at the normal cost of £26.

Leeds Electronics, Which Has Only One Product, Has Provided the Following