What is operating income when using absorption costing?

ACCOUNTING

Multiple Choice

Andrea’s Hobbies produces and sells a luxury animal pillow for $40.00 per unit. In the first month of operation, 3,000 units were produced and 2,250 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes:



Variable manufacturing costs $19 per unit

Variable marketing costs $ 1 per unit

Fixed manufacturing costs $30,000 per month

Administrative expenses, all fixed $6,000 per month

Ending inventories:

Direct materials -0-

WIP -0-

Finished goods 750 units



What is operating income when using absorption costing?

a. $4,000

b. $16,500

c. ($11,750)

d. $18,750

Click here for the SOLUTION