Craft Corporation Produces a Single Product

question 196

Multiple Choice

Craft Corporation produces a single product. Last year, the company had a net operating income of $80,000 using absorption costing and $74,500 using variable costing. The fixed manufacturing overhead cost was $5 per unit. There were no beginning inventories. If 21,500 units were produced last year, then sales last year were:

• A)16,000 units
• B)20,400 units
• C)22,600 units
• D)27,000 units

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Definitions:

Contribution Margin

The portion of sales revenue that exceeds variable costs, serving to cover fixed expenses and contribute to profits.

Fixed Manufacturing Cost

Involves the expenses that do not fluctuate with the level of production, such as rent for factory premises, salaries of permanent employees, and depreciation of factory equipment.

Relevant Range

The band of normal activity level or volume in which specific cost and revenue relationships hold true.

Mixed Costs

Expenses that have both fixed and variable components, changing in total with the level of activity but not in a directly proportional manner.