10. A company began operations in Year 1. Production for the first 3 years are 2
ID: 2489597 • Letter: 1
Question
10. A company began operations in Year 1. Production for the first 3 years are 20,000 units for Year 1, 22,000 units for Year 2, and 20,000 units for Year 3. Sales for the first 3 years are 19,000 units in Year 1, 19,000 units for Year 2, and 24,000 units for Year 3. Assume that absorption costing income in Year 1 was $80,000. In which other years would absorption cost net income most likely be greater than $80,000?
A. Just Year 2
B. Just Year 3
C. Both Year 2 and Year 3
D. Neither Year 2 nor Year 3 would most likely have income greater than $80,000
Please Explain!!!
Explanation / Answer
The absorption cost net income is most likely greater than $ 80,000 in b. Just Year 3
Explanation:
Given :
Year Production (Units) Sales (Units) Closing Stock (Units)
1 20,000 19,000 1,000
2 22,000 19,000 4,000
3 20,000 24,000 -
When the production was 20,000 units in year 1 and sale was 19,000 units in year 1 , the absorption costing income was $ 80,000.
In the 2nd year we observe, that the sale has remained the same but the production has increased. This means that the cost incurred for production has increased. Hence, the absorption costing income would be less than $ 80,000.
In the 3rd year we observe, that the sale has increased but the production has remained the same as Year 1. This means that the cost incurred for production is the same. Hence, the absorption costing income would be more than $ 80,000.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.