During the current period,10,000 units were produced and 12,000 units were sold.Fixed manufacturing costs incurred amounted to $120,000.An absorption costing income statement would report fixed manufacturing costs as which of the following?
A)Costs of $144,000 as a deduction from gross profit to obtain operating income
B)Overhead of $120,000 as a deduction from sales revenue to obtain gross profit
C)Overhead of $144,000 as a deduction from sales revenue to obtain gross profit
D)Costs of $120,000 as a deduction from sales revenue to obtain contribution margin

Question

Quizplus · Accepted Answer

In absorption costing, fixed manufacturing costs are absorbed as overhead and included in the cost of each unit produced. Since 10,000 units were produced, the fixed manufacturing costs of $120,000 would be spread across those units, resulting in a cost of $12 per unit. When 12,000 units are sold, the fixed manufacturing costs absorbed in the cost of goods sold would be $144,000 (12,000 units x $12 per unit). Therefore, the correct answer is option C, which states that overhead of $144,000 is deducted from sales revenue to obtain gross profit.

During the Current Period,10,000 Units Were Produced and 12,000 Units