Harris Corporation produces a single product. Last year, Harris manufactured 29,

Question

Harris Corporation produces a single product. Last year, Harris manufactured 29,650 units and sold 24,600 units. Production costs for the year were as follows: Fixed manufacturing overhead $563,350 Variable manufacturing overhead $243,130 Direct labor $145,285 Direct materials $222,375 Sales were $1,070,100, for the year, variable selling and administrative expenses were $140,220, and fixed selling and administrative expenses were $210,515. 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: $95,950 lower than under absorption costing $95,950 higher than under absorption costing $29,795 higher than under absorption costing $29,795 lower than under absorption costing

Explanation / Answer

Total manufacturing costs per unit under absorption costing = (563350+243130+145285+222375)/29650 = 39.6

Total manufacturing costs per unit under variable costing = (243130+145285+222375)/29650 = 20.6

Thus, income under variable costing will be lower than absorption costing by = (29650-24600)*(39.6-20.6)=95950

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