MC Qu. 35 Sagon Corporation manufactures and sells ... The company is considerin

Question

MC Qu. 35 Sagon Corporation manufactures and sells ...

The company is considering using either super-variable costing or an absorption costing system that assigns $25 of direct labor cost and $56 of fixed manufacturing overhead to each unit that is produced. Which of the following statements is true regarding the net operating income in the first year?

a. Super-variable costing net operating income exceeds absorption costing net operating income by $486,000.

b. Absorption costing net operating income exceeds super-variable costing net operating income by $336,000.

c. Absorption costing net operating income exceeds super-variable costing net operating income by $486,000.

d. Super-variable costing net operating income exceeds absorption costing net operating income by $336,000.

Explanation / Answer

Sagon Corporation All Amounts in $ Net Operating Income using Super Variable Costing Net Operating Income using Absorption Costing Sales 5313000 Sales 5313000 Direct Material Cost 1909000 Cost of Goods Sold Contribution Margin 3404000 Direct Materials 1909000 Fixed Costs as given 3108000 Direct Labor 725000 Net Operating Income 296000 Manufacturing Overheads 1624000 4258000 Contribution Margin 1055000 Fixed Costs Direct Labor 150000 Manufacturing Overheads 336000 Selling and Administrative 759000 1245000 Net Operating Income -190000 From the working, it is clear that Super-variable costing net operating income exceeds absorption costing net operating income by $486,000.

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