Jasper Enterprises had the following cost and production information for April: What is Jasper Enterprise's income under absorption costing?
A) $1,400,000
B) $1,460,000
C) $1,745,000
D) $1,785,000

Question

Jasper Enterprises had the following cost and production information for April:  What is Jasper Enterprise's income under absorption costing?
A) $1,400,000 
B) $1,460,000 
C) $1,745,000 
D) $1,785,000

Quizplus · Accepted Answer

Under absorption costing, Jasper Enterprises' income is calculated as follows:
Total Revenue - Cost of Goods Sold
Total Revenue = 115,000 units x $18 = $2,070,000
Cost of Goods Sold = Direct Materials + Direct Labor + Variable Manufacturing Overhead + Fixed Manufacturing Overhead
Direct Materials = 115,000 units x $2 = $230,000
Direct Labor = 115,000 units x $3 = $345,000
Variable Manufacturing Overhead = 115,000 units x $1 = $115,000
Fixed Manufacturing Overhead = $400,000
Total Cost of Goods Sold = $1,090,000
Income = $2,070,000 - $1,090,000 = $980,000
Therefore, choice B ($1,460,000) is the correct answer.

Jasper Enterprises Had the Following Cost and Production Information for April