During the most recent year,Evans Company had operating income of $90,000 using absorption costing and $84,000 using variable costing.The fixed manufacturing overhead application rate was $6 per unit.There were no beginning inventories.If 22,000 units were produced last year,what were the sales in units for last year?
A) 15,000 units.
B) 21,000 units.
C) 23,000 units.
D) 28,000 units.Sales = 22,000 - 1,000 = 21,000 units.

Question

Quizplus · Accepted Answer

Using absorption costing: 
Revenue - Cost of goods sold = Gross profit 
Revenue - (Variable manufacturing cost + Fixed manufacturing cost + Variable selling and administrative cost + Fixed selling and administrative cost) = Gross profit 
Using the given numbers, we can solve for revenue: 
$90,000 - ($50,000 + $132,000 + $17,000 + $1,000) = Gross profit 
$90,000 - $200,000 = Gross profit 
Gross Profit = -$110,000 (a loss)

Using variable costing: 
Revenue - Variable costs (manufacturing and selling/administrative) = Contribution margin 
Revenue - ($50,000 + $17,000) = Contribution margin 
$84,000 = Contribution margin 
Using the fixed manufacturing overhead application rate of $6 per unit, we can solve for the number of units in ending inventory: 
$132,000 ÷ $6 = 22,000 units produced 
22,000 - Sales = 1,000 units in ending inventory 
22,000 - 1,000 = 21,000 units sold.

During the Most Recent Year,Evans Company Had Operating Income of $90,000