A business operated at 100% of capacity during its first month, with the following results: What is the amount of the income from operations that would be reported on the absorption costing income statement?
A) $21,000
B) $18,900
C) $18,200
D) $27,900

Question

A business operated at 100% of capacity during its first month, with the following results:  What is the amount of the income from operations that would be reported on the absorption costing income statement?
A) $21,000 
B) $18,900 
C) $18,200 
D) $27,900

Quizplus · Accepted Answer

To calculate income from operations using absorption costing, we need to use the formula:

Income from operations = Sales - Cost of goods sold - Selling and administrative expenses - Fixed manufacturing overhead

Using the data from the table, we have:

Sales = $126,000
Cost of goods sold = $50,000 (direct materials + direct labor + variable manufacturing overhead + fixed manufacturing overhead applied)
Selling and administrative expenses = $25,100
Fixed manufacturing overhead = $32,000

Plugging these numbers into the formula, we get:

Income from operations = $126,000 - $50,000 - $25,100 - $32,000
Income from operations = $18,900

Therefore, the correct answer is B.

A Business Operated at 100% of Capacity During Its First