Front Company had net income of $72,500 based on variable costing.Beginning and ending inventories were 800 units and 1,200 units,respectively.Assume the fixed overhead per unit was $7.90 for both the beginning and ending inventory.What is net income under absorption costing?
A)$69,340
B)$75,660
C)$88,300
D)$56,700
E)$72,900

Question

Quizplus · Accepted Answer

Under absorption costing, fixed overhead is included in inventory costs. The increase in inventory (400 units) means more fixed overhead is deferred in inventory. The fixed overhead per unit is $7.90, so the deferred fixed overhead is 400 units * $7.90 = $3,160. Therefore, absorption costing net income is $72,500 + $3,160 = $75,660.

Front Company Had Net Income of $72,500 Based on Variable