Pact Company had net income of $972,000 based on variable costing.Beginning and ending inventories were 7,800 units and 5,200 units,respectively.Assume the fixed overhead per unit was $3.61 for both the beginning and ending inventory.What is net income under absorption costing?
A)$962,614
B)$1,018,923
C)$925,077
D)$969,400
E)$981,379

Question

Quizplus · Accepted Answer

Under absorption costing, fixed overhead is applied to units produced. The difference between variable costing and absorption costing is the amount of fixed overhead applied to ending inventory. In this case, the fixed overhead applied to ending inventory is $5,200 units * $3.61 per unit = $18,732. Therefore, net income under absorption costing is $972,000 + $18,732 = $990,732.

Pact Company Had Net Income of $972,000 Based on Variable