Sanders Company has the following information for last year:
There were no beginning inventories.
-Refer to Figure 8-5. What is the income for Sanders using the absorption costing method?
A) $520,000
B) $480,000
C) $1,200,000
D) $500,000

Question

Sanders Company has the following information for last year:
  There were no beginning inventories.
-Refer to Figure 8-5. What is the income for Sanders using the absorption costing method?
A) $520,000 
B) $480,000 
C) $1,200,000 
D) $500,000

Quizplus · Accepted Answer

Absorption costing method includes all manufacturing costs in the cost of goods sold, including fixed manufacturing overhead costs. Based on the information provided, the total manufacturing cost is $1,320,000 ($800,000 variable manufacturing costs + $520,000 fixed manufacturing overhead costs). Therefore, the cost of goods sold is $1,320,000, and the income for Sanders is $520,000 ($2,000,000 sales - $1,320,000 COGS). Option A is the correct answer.

Sanders Company Has the Following Information for Last Year