During Its First Year of Operations,the McCormick Company Incurred the Following

question 71

Multiple Choice

During its first year of operations,the McCormick Company incurred the following manufacturing costs: Direct materials,$5 per unit,Direct labor,$3 per unit,Variable overhead,$4 per unit,and Fixed overhead,$250,000.The company produced 25,000 units,and sold 20,000 units,leaving 5,000 units in inventory at year-end.Income calculated under variable costing is determined to be $315,000.How much income is reported under absorption costing?

• A)$315,000
• B)$265,000
• C)$565,000
• D)$365,000
• E)$290,000

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Definitions:

Operating

Pertains to the regular, ongoing activities of a business that are involved in the production or sale of goods and services.

GAAP

Generally Accepted Accounting Principles; a framework of accounting standards, rules and procedures defined by the professional accounting industry, used to compile financial statements.

FASB

The Financial Accounting Standards Board, an organization that establishes financial accounting and reporting standards in the United States.

Financial Accounting

The field of accounting focused on the summary, analysis, and reporting of financial transactions pertaining to a business, leading to the creation of financial statements.