Monex reported $65 000 in net profit for the year using absorption costing. The company had no units in beginning inventory, planned and actual production was 20 000 units and sales were 18 000 units during the year. Variable manufacturing costs were $20 per unit and total budgeted fixed manufacturing overhead was $100 000. There was no underapplied or overapplied overhead reported during the year. Determine the net profit under variable costing.
A) $115 000
B) $75 000
C) $65 000
D) $55 000

Question

Quizplus · Accepted Answer

Under variable costing, fixed manufacturing overhead is expensed in full in the period incurred. The difference in net profit between absorption and variable costing is due to the fixed manufacturing overhead deferred in inventory. With 2,000 units in ending inventory, $10,000 ($100,000/20,000 units * 2,000 units) of fixed overhead is deferred. Therefore, net profit under variable costing is $65,000 - $10,000 = $55,000.

Monex Reported $65 000 in Net Profit for the Year