Eagle Corporation manufactures a picnic table. Shown below is Eagle's cost structure: In its first year of operations, Eagle produced and sold 10,000 tables. The tables sold for $120 each.
-How would Eagle's absorption costing net operating income have been affected in its first year if 12,000 tables were produced instead of 10,000 and Eagle still sold 10,000 tables?
A)net operating income would not have been affected
B)net operating income would have been $27,000 higher
C)net operating income would have been $31,500 higher
D)net operating income would have been $116,000 lower

Question

Eagle Corporation manufactures a picnic table. Shown below is Eagle's cost structure: In its first year of operations, Eagle produced and sold 10,000 tables. The tables sold for $120 each.
-How would Eagle's absorption costing net operating income have been affected in its first year if 12,000 tables were produced instead of 10,000 and Eagle still sold 10,000 tables?
A)net operating income would not have been affected 
B)net operating income would have been $27,000 higher 
C)net operating income would have been $31,500 higher 
D)net operating income would have been $116,000 lower

Quizplus · Accepted Answer

Absorption costing income statement with production and sales of 10,000 units:
 11eaa48f_7ba6_34c2_9e4a_c72650d74587_TB2485_00 
 11eaa48f_7ba6_5bd3_9e4a_63e662ec6ca4_TB2485_00 Absorption costing income statement with production of 12,000 units and sales of 10,000 units:
 11eaa48f_7ba6_5bd4_9e4a_3d6c3cc5422e_TB2485_00 
 11eaa48f_7ba6_5bd5_9e4a_b131a70dfed6_TB2485_00 Therefore,net operating income would have been $27,000 higher (= $398,000 - $371,000)

Eagle Corporation Manufactures a Picnic Table