Question

Mortech Company had net income of $243,000 based on variable costing. Beginning and ending inventories were 43,000 units and 42,000 units, respectively. Assume the fixed overhead per unit was $0.75 for both the beginning and ending inventory. What is net income under absorption costing?

Answer 1

Answer:

$242,250

Explanation:

Given that,

Net income based on variable costing = $243,000

Beginning inventories = 43,000 units

Ending inventories = 42,000 units

Fixed overhead per unit = $0.75

Inventory:

= (Beginning inventories - Ending inventories) × Fixed overhead per unit

= (43,000 units - 42,000 units) × $0.75

= 1,000 units × $0.75

= $750

Net income under absorption costing:

= Net income based on variable costing - Inventory

= $243,000 - $750

= $242,250