Rosewood Corporation produces a single product. The following cost structure applied to its first year of operations: Variable costs: SG&A $2 per unit Production $4 per unit Fixed costs (total cost incurred for the year): SG&A $14,000 Production $20,000 Refer to Rosewood Corporation. Assume for this question only that during the current year Rosewood Corporation manufactured 5,000 units and sold
3,800 . There was no beginning or ending work-in-process inventory. How much larger or smaller would Rosewood Corporation's income be if it uses absorption rather than variable costing?
a. The absorption costing income would be $6,000 larger.
b. The absorption costing income would be $6,000 smaller.
c. The absorption costing income would be $4,800 larger.
d. The absorption costing income would be $4,000 smaller.
C
Add back fixed manufacturing portion of units unsold (1,200/5,000) * $20,000 = $4,800.
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