Michelman Corporation Manufactures and Sells One Product

question 12

Multiple Choice

Michelman Corporation manufactures and sells one product. The following information pertains to the company's first year of operations: The company does not have any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, the company produced 34,000 units and sold 31,000 units. The company's only product is sold for $254 per unit.
The company is considering using either super-variable costing or an absorption costing system that assigns $28 of direct labor cost and $75 of fixed manufacturing overhead to each unit that is produced. Which of the following statements is true regarding the net operating income in the first year?

• A) Absorption costing net operating income exceeds super-variable costing net operating income by $309,000.
• B) Absorption costing net operating income exceeds super-variable costing net operating income by $225,000.
• C) Super-variable costing net operating income exceeds absorption costing net operating income by $309,000.
• D) Super-variable costing net operating income exceeds absorption costing net operating income by $225,000.

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Definitions:

Small Populations

Demographic groups with a relatively small number of individuals, often making them subject to unique economic and statistical considerations.

Import Automobiles

The act of bringing cars into a country from abroad for use or sale.

Gains From Trade

The benefit that economies and individuals receive from the voluntary exchange of goods and services beyond what they could produce themselves.

Tariff Revenue

Tariff Revenue is the income generated from duties imposed by a government on imported goods, which is often used as a tool for economic policy.