Question

Jeter Corporation had net income of $221,000 based on variable costing.

Beginning and ending inventories were 6,900 units and 11,800 units, respectively.

Assume the fixed overhead per unit was $5 for both the beginning and ending inventory.

What is net income under absorption costing?

Answer 1

Answer:

$245,500

Explanation:

Given that,

Net income  under variable costing = $221,000

Beginning and ending inventories were 6,900 units and 11,800 units, respectively

Net operating income under absorption costing:

= Net operating income under variable costing + fixed manufacturing overhead cost deferred in inventory

= $221,000 + [(11,800 - 6,900) × $5.00]

= $221,000 + (4,900 kg  × $5.00)

= $221,000 + $24,500

= $245,500