Question

Question 46 (1 point) Kern Corporation produces a single product. Selected information concerning the operations of the company follow: Units in beginning inventory Units produced Units sold 10,000 9,000 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses $ 40,000 $ 20,000 $ 12,000 $ 25,000 $ 4,500 $ 30,000 Assume that direct labor is a variable cost. Which costing method, absorption or variable costing, would show a higher operating income for the year and by what am Question 46 options: Absorption costing net operating income would be higher than variable costing net operating income by $2,500. Variable costing net operating income would be higher than absorption costing net operating income by $2,500. Absorption costing net operating income would be higher than variable costing net operating income by $5,500. Variable costing net operating income would be higher than absorption costing net operating income by $5,500

Answer 1

In absorption costing, Fixed manufacturing overhead is a part of ending inventory of Finished goods.

Fixed manufacturing overhead element included in ending inventory of finished goods in absorption costing= Fixed manufacturing overhead x ending inventory units/units produced

= 25,000 x 1000/10,000

= $2,500

Thus, ending inventory of finished goods will be higher by $2,500 in absorption costing as compared to variable costing and hence net operating income under absorption costing will be higher by $2,500 than variable costing net operating income.

First option is correct option.

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