AgRanch Co. is a farming corporation that grows and sells crops in the Midwest. The company is publicly traded on the stock market: however, management prefers to use variable costing for decision purposes. The company's books are adjusted to arrive at Absorption Income for financial reporting purposes.
The company reported the following financial information for the past month:
The company tracks harvested crops that have not yet been shipped out as "in-process." This inventory of food increased from the equivalent of 50 full truckloads at the beginning of the month to 75 full truckloads at the end of the month.
What was Absorption Net Income?

Question

AgRanch Co. is a farming corporation that grows and sells crops in the Midwest. The company is publicly traded on the stock market: however, management prefers to use variable costing for decision purposes. The company's books are adjusted to arrive at Absorption Income for financial reporting purposes. 
The company reported the following financial information for the past month:
  The company tracks harvested crops that have not yet been shipped out as "in-process." This inventory of food increased from the equivalent of 50 full truckloads at the beginning of the month to 75 full truckloads at the end of the month.
What was Absorption Net Income?

Quizplus · Accepted Answer

The Answer is Absorption Income =
Variable Income + (difference between Ending and Beginning Inventory) x Fixed Overhead/unit
Ending - Beginning Inventory = 75 - 50 = 25
Absorption Income = $600,000 + (25 units x $300unit) = $607,500