Question

Jeter Corporation had net income of $230,000 based on variable costing. Beginning and ending inventories were 7,800 units and 13,600 units, respectively. Assume the fixed overhead per unit was $7 for both the beginning and ending inventory. What is net income under absorption costing?

Answer 1

$270,600

Step-by-step explanation:

net income of based on variable costing = $230,000

beginning and ending inventories were 7,800 units and 13,600 units

fixed overhead per unit = $7

to calculate net income using absorption costing:

= net income + [(ending inv. - beginning inv.) x fixed overhead per unit]

= $230,000 + [(13,600 - 7,800) x $7]

= $230,000 + $40,600 = $270,600

Under variable costing, beginning and ending inventories are valued only using variable costs, while absorption costing values all inventories using full production costs.