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Nielson Corp. sells its product for $6,600 per unit. Variable costs per unit are: manufacturing, $3,600, and selling and administrative, $75. Fixed costs are: $18,000 manufacturing overhead, and $24,000 selling and administrative. There was no beginning inventory at 1/1/15. Production was 20 units per year in 2015-2017. Sales were 20 units in 2015, 16 units in 2016, and 24 units in 2017.
-Income under absorption costing for 2017 is
A)$19,800.
B)$23,400.
C)$24,600.
D)$28,200.

Question

Use the following information for questions 
Nielson Corp. sells its product for $6,600 per unit. Variable costs per unit are: manufacturing, $3,600, and selling and administrative, $75. Fixed costs are: $18,000 manufacturing overhead, and $24,000 selling and administrative. There was no beginning inventory at 1/1/15. Production was 20 units per year in 2015-2017. Sales were 20 units in 2015, 16 units in 2016, and 24 units in 2017.
-Income under absorption costing for 2017 is
A)$19,800.
B)$23,400.
C)$24,600.
D)$28,200.

Quizplus · Accepted Answer

Under absorption costing, fixed overhead costs are included in the cost of each unit produced. Therefore, for 2017, total manufacturing cost per unit is $3,600 + ($18,000/20) = $4,500 and total selling and administrative cost per unit is $75 + ($24,000/20) = $1,215. Total cost per unit is $4,500 + $1,215 = $5,715. Total revenue for 24 units sold is $6,600 x 24 = $158,400. Total cost for 24 units sold is $5,715 x 24 = $137,160. Thus, income under absorption costing for 2017 is $158,400 - $137,160 = $21,240.

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