Lockhart Products Produces a Single Product

question 87

Multiple Choice

Lockhart Products produces a single product. During 2012 the company incurred the following costs: Lockhart had no units in beginning inventory. During 2012, 6,000 units were produced and 5,000 units were sold. Which of the following statements is true when comparing net operating income using absorption versus variable costing?

• A) Net operating income will be $3,500 higher using absorption costing than using variable costing.
• B) Net operating income will be $3,500 lower using absorption costing than using variable costing.
• C) Net operating income will be $4,200 higher using absorption costing than using variable costing.
• D) Net operating income will be $4,200 lower using absorption costing than using variable costing.

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Definitions:

Warranty Expense

Costs that a company anticipates or incurs when repairing or replacing products under warranty to meet its customers' expectations or contractual obligations.

Installment Note

A debt instrument that requires a series of periodic payments, typically consisting of both principal and interest.

Annual Payments

Periodic payments made once every year.

Carrying Amount

The net amount at which an asset or liability is reported on the balance sheet, calculated as the original cost minus any accumulated depreciation, amortization, or impairment costs.