A manufacturer reports the following information below for its first three years in operation.
Income for year 3-year period using absorption costing is:
A) $280,000.
B) $310,000.
C) $300,000.
D) $305,000.
E) $308,000.

Question

A manufacturer reports the following information below for its first three years in operation. 
 Income for year 3-year period using absorption costing is:
A) $280,000. 
B) $310,000. 
C) $300,000. 
D) $305,000. 
E) $308,000.

Quizplus · Accepted Answer

Income under absorption costing = Income under variable costing − FOH beginning inventory + FOH ending inventory
Year 1:
$76,000 − (0 units × $8.00) + (800 units × $8.00) = $82,400
Year 2:
$109,000 − (800 units × $8.00) + (500 units × $8.00) = $106,600
Year 3:
$115,000 − (500 units × $8.00) + (0 units × $8.00) = $111,000
Total: $82,400 + $106,600 + $111,000 = $300,000
Note: Since total inventory levels at the beginning and end of the 3-year period are identical (0 units beginning inventory, Year 1; 0 units ending inventory, Year 3), income under absorption costing is identical to inventory under variable costing. $76,000 + $109,000 + $115,000 = $300,000)

A Manufacturer Reports the Following Information Below for Its First