Jeter corporation had net income of $212,000 based on variable costing. beginning and ending inventories were 6,000 units and 10
,000 units, respectively. assume the fixed overhead per unit was $4 for both the beginning and ending inventory. what is net income under absorption costing?
net income of based on variable costing = $212,000 <span>beginning and ending inventories were 6,000 units and 10,000 units </span><span>fixed overhead per unit = $4 This is how we calculate the </span>net income under absorption costing;
Answer: Net Income underabsorption costing will be $228,000.
Explanation:
Marginal and absorption costing are two different methods to deal with fixed production overheads and and decide whether or not they are included in valuation of inventory.
Valuation of inventory - opening and closing inventory are valued at variable cost under variable costing. Whereas in absorption costing, opening and closing inventory are valued at full production cost.
Fixed costs: Under variable costing, fixed costs actually incurred are deducted from contribution earned in order to determine the profit or loss for the period. Whereas in absorption costing, fixed cost becomes part of full production cost and an adjustment for under or over absorption of overheads is required.
Reconciling profits reported under two different methods
When inventory levels increase or decrease during a period then profits will differ under absorption and marginal costing.
If inventory levels increase, absorption costing gives the higher profit.
Net Income under absorption costing = Net Income under variable costing + [(Closing Inventory - Opening Inventory) x Fixed Overhead Per Unit
Selling price of stock at the end of the year is $6.99. Annual return rate is 6%. Price of stock at the beginning will be present value of stock valued at the end discounted at 6%. Computation is as shown below:
= $6.59
Therefore, Stock's price in the beginning of the year is $6.59.
Working capital is calculated by deducting current liabilities from current assets. It is meant to show the operating liquidity of a company within a period.
Working capital = Current assets - Current liabilities
The multiplier is calculated by two marginal decisions by firms and individuals. A firm can decide whether to save the revenue or to consume it, therefore there is marginal propensity to consume and marginal propensity to save as options for both firms and individuals. Therefore, the size of the multiplier which is applied to a change in AD is dependent upon size of the marginal propensity to consume and marginal propensity to save.
