Springer began business at the start of the current year. The company planned to produce 40,000 units, and actual production conformed to expectations. Sales totaled 37,000 units at $42 each. Costs incurred were: $\begin{array}{lr}
\text { Variable manufacturing overhead per unit } & \$ 19 \
\text { Fixed manufacturing overhead } & 240,000 \
\text { Variable selling and administrative cost per unit } & 7 \
\text { Fixed selling and administrative cost per unit } & 140,000
\end{array}$ If there were no variances, the company's absorption-costing income would be:
A) $155,000.
B) $230,000.
C) $240,500.
D) $592,000.
E) None of the other answers are correct.

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead is allocated to each unit produced. The cost per unit is $19 (variable manufacturing overhead) + $6 (fixed manufacturing overhead per unit, $240,000/40,000 units) = $25. Total cost per unit is $25 + $7 (variable selling and administrative) = $32. Total cost for 37,000 units sold is $32 * 37,000 = $1,184,000. Sales revenue is $42 * 37,000 = $1,554,000. Absorption-costing income is $1,554,000 - $1,184,000 = $370,000. However, fixed selling and administrative costs of $140,000 must be subtracted, resulting in $230,000.

Springer Began Business at the Start of the Current Year