Moneka reported $55,000 of income for the year by using absorption costing. The company had no...

Question:

Moneka reported $55,000 of income for the year by using absorption costing. The company had no beginning inventory, planned and actual production of 20,000 units, and sales of 16,000 units. Standard variable manufacturing costs were $22 per unit, and total budgeted fixed manufacturing overhead was $50,000. If there were no variances, income under variable costing would be:

A. $45,000.

B. $55,000.

C. $65,000.

D. $105,000.

E. $5,000.

Variable Costing:

Variable costing refers to a method that focuses on assigning variable costs to the inventory. The method states that all the overhead costs may be imposed on the expenses in the period in which they occurred.

Answer and Explanation:

(Correct answer: A)

Given that fixed manufacturing cost per unit = 50,000 / 20,000 =>2.5

Increase in the ending inventory(20,000 - 16,000) = 4,000units.

Decrease in the income under variable cost = 2.5 * 4,000 => 10,000

Now,

Income under absorption costing = 55,000

Income under variable costing => 55,000 - 10,000

=> $45,000