Roberts Company produces a single product.This year,the company's net operating income under absorption costing was $2,000 lower than under variable costing.The company sold 8,000 units during the year,and its variable costs were $8 per unit,of which $2 was variable selling and administrative expense.If production cost was $10 per unit under absorption costing,then how many units did the company produce during the year? (The company produced the same number of units last year. )
A)7,500 units
B)7,000 units
C)9,000 units
D)8,500 units

Question

Quizplus · Accepted Answer

Variable production cost per unit = $8 per unit - $2 per unit = $6 per unit
Absorption unit product cost = Variable production cost per unit + Fixed production cost per unit
$10 per unit = $6 per unit + Fixed manufacturing overhead cost per unit
Fixed manufacturing overhead cost per unit = $10 per unit - $6 per unit = $4 per unit
Since absorption costing net operating income was $2,000 lower than its variable costing net operating income,$2,000 of fixed manufacturing overhead cost was released from inventory under absorption costing.
Fixed manufacturing overhead cost released from inventory under absorption costing = Fixed manufacturing overhead cost per unit F1F1F1S1F1F1F10 Decrease in units in inventory
$2,000 = $4 per unit F1F1F1S1F1F1F10 Decrease in units in inventory
Decrease in units in inventory = $2,000 F1F1F1S1F1F1F10 $4 per unit = 500 units
Units sold = Units produced + Decrease in units in inventory
8,000 units = Units produced + 500 units
Units produced = 8,000 units - 500 units = 7,500 units

Roberts Company Produces a Single Product