(Appendix 6A) Letcher Corporation Manufactures and Sells One Product

question 36

Multiple Choice

(Appendix 6A) Letcher 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 56,000 units and sold 54,000 units. The company's only product is sold for $227 per unit.
-The company is considering using either super-variable costing or an absorption costing system that assigns $11 of direct labor cost and $62 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) Super-variable costing net operating income exceeds absorption costing net operating income by $146,000.
• B) Absorption costing net operating income exceeds super-variable costing net operating income by $124,000.
• C) Super-variable costing net operating income exceeds absorption costing net operating income by $124,000.
• D) Absorption costing net operating income exceeds super-variable costing net operating income by $146,000.

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Definitions:

Cost-Plus Approach

A pricing tactic that involves setting a sales price by adding a predetermined margin to the cost of the product.

Administrative Expenses

Costs related to the general management and administration of a company, such as salaries of executive officers and costs of general services.

Normal Levels

Standard measurements or averages that are considered typical or expected within a specific context, such as production, performance, or inventory levels.

Cost-Plus Approach

A pricing strategy where a fixed percentage or amount is added to the cost of producing a product or service to determine its selling price.