During its first year of operations, the McCormick Company incurred the following manufacturing costs: Direct materials, $5 per unit, Direct labor, $3 per unit, Variable overhead, $4 per unit, and Fixed overhead, $250,000. The company produced 25,000 units, and sold 20,000 units, leaving 5,000 units in inventory at year-end. Income calculated under variable costing is determined to be $315,000. How much income is reported under absorption costing?
A) $315,000
B) $265,000
C) $565,000
D) $365,000
D) $365,000
Explanation: Income under absorption costing = Income under variable costing + Fixed
overhead cost in ending inventory - Fixed overhead cost in beginning inventory. $315,000 +$50,000 - $0 = $365,000.
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