Harris Corporation produces a single product.Last year,Harris manufactured 17,000 units and sold 13,000 units.Production costs for the year were as follows: Sales were $780,000 for the year,variable selling and administrative expenses were $88,400,and fixed selling and administrative expenses were $170,000.There was no beginning inventory.Assume that direct labor is a variable cost. Under variable costing,the company's net operating income for the year would be:
A)$60,000 higher than under absorption costing
B)$108,000 higher than under absorption costing
C)$108,000 lower than under absorption costing
D)$60,000 lower than under absorption costing

Question

Harris Corporation produces a single product.Last year,Harris manufactured 17,000 units and sold 13,000 units.Production costs for the year were as follows:  Sales were $780,000 for the year,variable selling and administrative expenses were $88,400,and fixed selling and administrative expenses were $170,000.There was no beginning inventory.Assume that direct labor is a variable cost. Under variable costing,the company's net operating income for the year would be:
A)$60,000 higher than under absorption costing 
B)$108,000 higher than under absorption costing 
C)$108,000 lower than under absorption costing 
D)$60,000 lower than under absorption costing

Quizplus · Accepted Answer

Units in ending inventory = Units in beginning inventory + Units produced - Units sold
= 0 units + 17,000 units - 13,000 units = 4,000 units
Fixed manufacturing overhead per unit = Fixed manufacturing overhead ÷ Units produced
= $255,000 ÷ 17,000 units = $15.00 per unit
Manufacturing overhead deferred in (released from)inventory = Fixed manufacturing overhead in ending inventory - Fixed manufacturing overhead in beginning inventory = ($15.00 per unit × 4,000 units)- $0 = $60,000
Therefore,variable costing net operating income will be $60,000 lower than absorption costing net operating income.

Harris Corporation Produces a Single Product