Harris Company produces a single product. Last year, Harris manufactured 17,000

Question

Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000 units. Production costs for the year were as follows:

Production Cost Data
Direct materials $153,000
Direct labor $110,500
Variable manufacturing overhead $204,000

Fixed manufacturing overhead
$255,000

Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct labor is a variable cost.

Under variable costing, the company's net operating income for the year would be _______ than under absorption costing.


A. $60,000 higher
B. $108,000 higher
C. $108,000 lower
D. $60,000 lower

Explanation / Answer

In this case, we know Production Cost Data is as follows Direct materials $153,000 Direct labor $110,500 Variable manufacturing overhead $204,000 Fixed manufacturing overhead $255,000 Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct labor is a variable cost. Therefore our answer is C Hope this helps

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