In its first month of operations oliveira corporation produced 100,000 units. 80

ID: 2479679 • Letter: I

Question

In its first month of operations oliveira corporation produced 100,000 units. 80,000 units were sold. The manufacturing cost per unit was as follows:

Direct materials cost: $40

Direct labor cost: $10

Variable overhead cost: $30

Fixed overhead cost: $50

Total per unit cost: $130

Oliverira's operating income under absoprtion costing will be:

a) Lower than variable costing by $1,000,000

b) Higher than vairable costing by $600,000

c) Higher than variable costing by $1,000,000

d) The same as variable costing

Income under absorption costing will be higher than income under variable costing when there is unsold stock

Here unsold stock is =100,000-80,000=20,000 Units

Fixed Cost per Unit= $50

Unabsorbed Fixed cost = 20,000 x 50 =$1,000,000

Hence Option C correct

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