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During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $5 per unit, Direct labor, $3 per unit, Variable overhead, $4 per unit, and Fixed overhead, $290,000. The company produced 29,000 units, and sold 19,500 units, leaving 9,500 units in inventory at year-end. Income calculated under variable costing is determined to be $365,000. How much income is reported under absorption costing

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Answer:

$460,000

Explanation:

The computation of the income reported under absorption costing is shown below:

Fixed overhead under absorption costing is

= ($290,000 ÷ 29000 units)

= $10  per unit

Units in ending Inventory is

= 29,000 units - 19,500 units

= 9,500 units

Now the cost of ending units is

= 9,500 units × $10 per unit

= $95,000

And, finally Income under absorption costing

= Income under variable costing + ending inventory

= $365,000 + $95,000

= $460,000

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