Swifton Corporation produces a single product. Last year, the company had net operating income of $40,000 using variable costing. Beginning and ending inventories were 22,000 and 27,000 units, respectively. If the fixed manufacturing overhead cost was $3 per unit both last year and this year, what was the income using absorption costing?
A)$15,000
B)$25,000
C)$40,000
D)$55,000

Question

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead is included in the cost of inventory. Since ending inventory increased by 5,000 units (27,000 - 22,000), $15,000 (5,000 units x $3) of fixed overhead costs were deferred in inventory, increasing the net operating income from $40,000 to $55,000.

Swifton Corporation Produces a Single Product