Hurlex Company produces a single product. last yar,Hurlex manufactured 15,000 un

Question

Hurlex Company produces a single product. last yar,Hurlex manufactured 15,000 units and sold 12,000 units. Production costs for the yar were as follows:
Directmaterials.....................................$150,000
Direct labor..........................................$180,000
Variable manufacturing overhead...........$135,000
Fixed manufacturing overhead................$210,000
Sales totaled $840,000 for the year, variable sellingexpenses totaled $60,000, and fixed selling andadministrative expenses totaled $180,000. There were no unitsin the beginning inventory. Assume that direct labor is avarialbe cost.

Under variable costing, the company's net operating income forthe year would be:
a) $42,000 higher than under absorption costing
b) $30,000 higher than under absorption costing
c) $30,000 lower than under absorption costing
d) $42,000 lower than under absorption costing Hurlex Company produces a single product. last yar,Hurlex manufactured 15,000 units and sold 12,000 units. Production costs for the yar were as follows: Directmaterials.....................................$150,000 Direct labor..........................................$180,000 Variable manufacturing overhead...........$135,000 Fixed manufacturing overhead................$210,000 Sales totaled $840,000 for the year, variable sellingexpenses totaled $60,000, and fixed selling andadministrative expenses totaled $180,000. There were no unitsin the beginning inventory. Assume that direct labor is avarialbe cost. Under variable costing, the company's net operating income forthe year would be: a) $42,000 higher than under absorption costing b) $30,000 higher than under absorption costing c) $30,000 lower than under absorption costing d) $42,000 lower than under absorption costing

Explanation / Answer

Absorption Costing

Total

Variable Costing

Total

Absorption Costing

Total

Variable Costing

Total

Sales $840,000     $840,000 Cost Of Goods Sold Direct Materials $150,000 $150,000 Direct Labor $180,000 $180,000 Variable Manufacturing Overhead $135,000 $135,000 Variable Selling Expense $60,000 $60,000 Total $525,000 $525,000 Less : Ending Inventory ($135,000) $390,000 ($105,000) $420,000 Gross Profit $450,000 $420,000 Operating Expenses : Fixed Manufacturing Overhead $210,000 $210,000 Fixed Selling & Administrative Expenses $180,000 $390,000 $180,000 $390,000 Operating Profit $60,000 $30,000

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