A business operated at 100% of capacity during its first month, with the following results: What is the amount of the income from operations that would be reported on the absorption costing income statement?
A) $21,000
B) $18,900
C) $18,200
D) $27,900

Question

A business operated at 100% of capacity during its first month, with the following results:  What is the amount of the income from operations that would be reported on the absorption costing income statement?
A) $21,000 
B) $18,900 
C) $18,200 
D) $27,900

Quizplus · Accepted Answer

Income from operations under absorption costing is calculated as follows:
Sales - Cost of Goods Sold = Gross Profit - Selling and Administrative expenses = Income from Operations
Sales = 10,000 units x $6 per unit = $60,000
Cost of Goods Sold = Direct Materials + Direct Labor + Variable Manufacturing Overhead + Fixed Manufacturing Overhead = $20,000 + $6,600 + $3,300 + $5,000 = $35,900
Gross Profit = $60,000 - $35,900 = $24,100
Selling and Administrative expenses = $5,200
Income from Operations = $24,100 - $5,200 = $18,900. Therefore, the correct answer is B.

A Business Operated at 100% of Capacity During Its First