What would Timmer's net income be for the year using absorption costing?

A) $114,000
B) $110,000
C) $4,000
D) $106,000

Question

What would Timmer's net income be for the year using absorption costing?A)  $114,000B)  $110,000C)  $4,000D)  $106,000

Elizabeth Peralta · Accepted Answer

Final Answer : A, Explanation :  Under absorption costing, all manufacturing costs (variable and fixed) are included in the cost of the product. The cost per unit is $6 ($4 variable + $2 fixed per unit, where fixed manufacturing cost per unit is $24,000/12,000 units). The cost of goods sold for 10,000 units is $60,000 (10,000 units x $6). Sales revenue is $200,000 (10,000 units x $20). Gross profit is $140,000 ($200,000 - $60,000). Subtract variable selling and administrative costs ($20,000) and fixed selling and administrative costs ($6,000) to get a net income of $114,000.

What would Timmer's net income be for the year using absorption costing?

A) $114,000
B) $110,000
C) $4,000
D) $106,000

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