Using the Given Information, Determine the Income Under Both the Absorption

question 38

Essay

Using the given information, determine the income under both the absorption and the direct (variable) costing methods for the company for the year. Explain the difference, if any. $\begin{array}{llcc} \text { Beginning Inventory } & -0- \text { units} \\ \text { Units produced } &15,000\\ \text { Ending Inventory } &2,000\\ \text {Sales price per unit } &\$44.00\\ \text { Variable manufacturing costs per unit } &19.00\\ \text { Variable selling \( \& \) administrative costs per unit} &4.00\\ \text { Fixed manufacturing costs } &\$75000\\ \text { Fixed selling and administrative costs } &\$79,950\\\end{array}$

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Definitions:

45-Degree Line

A graphical representation in economics, typically used in Keynesian cross diagrams, showing points where aggregate expenditure equals total output or income.

C Line

A reference in economic models, often representing the consumption function, which shows the relationship between consumption and disposable income.

Disposable Income

The financial scope households possess for spending and saving activities, following income taxes.

APC

The Average Propensity to Consume denotes the percentage of income allocated towards consumption.