Carr Company produces a single product. During the past year, Carr manufactured 25,000 units and sold 20,000 units. Production costs for the year were as follows:
-The net operating income for the year under variable costing would be:
A)$28,000 lower than under absorption costing
B)$28,000 higher than under absorption costing
C)$50,000 lower than under absorption costing
D)$50,000 higher than under absorption costing

Question

Quizplus · Accepted Answer

Change in units in inventory = Units produced - Units sold
= 25,000 units - 20,000 units = 5,000 unit increase
Fixed manufacturing overhead per unit = Fixed manufacturing overhead F1F1F1S1F1F1F10 Units produced
= $250,000 F1F1F1S1F1F1F10 25,000 units = $10.00 per unit
Since the units produced exceeds the units sold,fixed manufacturing overhead costs will be deferred in inventory and absorption costing net operating income will exceed variable costing net operating income.
Manufacturing overhead deferred in inventory = Fixed manufacturing overhead per unit F1F1F1S1F1F1F10 Increase in units in inventory = $10.00 per unit F1F1F1S1F1F1F10 5,000 units = $50,000

Carr Company Produces a Single Product