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Breckett Co. produces a single product. Selected information concerning the operations of the company follow: Units in beginning inventory 0 Units produced 10,000 Units sold
Breckett Co. produces a single product. Selected information concerning the operations of the company follow: | ||||
Units in beginning inventory | 0 | |||
Units produced | 10,000 | |||
Units sold | 7,500 | |||
Direct materials | $40,000 | |||
Direct labor | $20,000 | |||
Variable manufacturing overhead | $12,000 | |||
Fixed manufacturing overhead | $25,000 | |||
Variable selling and administrative expenses | $4,500 | |||
Fixed selling and administrative expenses | $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 amount? |
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 $6,250.
Variable costing net operating income would be higher than absorption costing net operating income by $6,250.
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