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?

$365,000 ⇒ This is the income that is observed under absorption costing.

Explanation:

Given that,

Following are the manufacturing costs of McCormick Company:

Direct materials = $5 per unit

Direct labor = $3 per unit

Variable overhead = $4 per unit

Fixed overhead = $250,000

Total units produced by a company = 25,000 units

Total units sold by a company = 20,000 units

Remaining units is for year-end inventory = 5,000 units

Income under Variable costing = $3,15,000

∴ Fixed overhead per unit =

=

= $10 per unit

So,

Fixed overhead cost in year-end inventory = Remaining units is for year-end inventory \times Fixed overhead per unit

= 5000 units \times $10

= $50,000

Hence,

Income under absorption costing = Income under variable costing + Fixed overhead cost in year-end inventory - Fixed overhead cost in beginning inventory

= $315,000 + $50,000 - $0

= $365,000 ⇒ This is the income that is observed under absorption costing.

there was no passage listed but using the process of elimination i'd say it was d. the high economy would do the opposite. i don't see how low prices would affect it. high unemployment is possible but i feel d is the better answer.