Locklear, Inc The Operating Income Calculated Using Variable Costing and Absorption Costing

question 48

Multiple Choice

Locklear, Inc. reports the following information for the year ended December 31: $$\begin{array} { | l | r | l | } \hline \text { Units sold } & 620 & \text { units } \\\hline \text { Sales price } & \$ 130 & \text { per unit } \\\hline \text { Direct materials } & \$ 28 & \text { per unit } \\\hline \text { Direct labor } & \$ 8 & \text { per unit } \\\hline \text { Variable manufacturing overhead } & \$ 13 & \text { per unit } \\\hline \text { Fixed manufacturing overhead } & \$ 12 & \text { per unit } \\\hline \text { Variable selling and administrative costs } & \$ 6 & \text { per unit } \\\hline \text { Fixed selling and administrative costs } & \$ 12,600 & \text { per year } \\\hline\end{array}$$ The operating income calculated using variable costing and absorption costing amounted to $10,000 and $12,700, respectively. There were no beginning inventories. Determine the total fixed manufacturing overhead that will be expensed under absorption costing for the year.

• A) $10,140
• B) $7440
• C) $24,800
• D) $30,380

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Definitions:

Process Reengineering

The fundamental rethinking and redesign of business processes to achieve dramatic improvements in critical measures of performance.

Competitive Advantage

The attribute that allows an organization to outperform its competitors, leading to greater sales or margins and/or retaining more customers.

Mass Production

A manufacturing process characterized by the high-volume production of standardized goods using assembly line techniques.

Assembly-Line System

An efficient manufacturing process where a product is assembled step by step in a sequential manner by workers stationed at fixed positions.