Loring Company had the following data for the month:
Fixed overhead is $4,000 per month; it is applied to production based on normal activity of 2,000 units. During the month, 2,000 units were produced. Loring started the month with 300 units in beginning inventory, with unit product cost equal to this month's unit product cost. A total of 2,100 units were sold during the month at price of $14. Selling and administrative expense for the month, all fixed, totaled $3,600.
-Refer to Figure 8-2. What is operating income under absorption costing?
A) $3,540
B) $7,980
C) $11,340
D) -$540
E) $3,740

Question

Loring Company had the following data for the month:
  Fixed overhead is $4,000 per month; it is applied to production based on normal activity of 2,000 units. During the month, 2,000 units were produced. Loring started the month with 300 units in beginning inventory, with unit product cost equal to this month's unit product cost. A total of 2,100 units were sold during the month at price of $14. Selling and administrative expense for the month, all fixed, totaled $3,600.
-Refer to Figure 8-2. What is operating income under absorption costing?
A) $3,540 
B) $7,980 
C) $11,340 
D) -$540 
E) $3,740

Quizplus · Accepted Answer

Absorption costing includes fixed manufacturing overhead costs as product costs. Therefore, operating income under absorption costing is $7,980 - $4,440 = $3,540.

Loring Company Had the Following Data for the Month