Favaz began business at the start of this year and had the following costs: variable manufacturing cost per unit, $9; fixed manufacturing costs, $60,000; variable selling and administrative costs per unit, $2; and fixed selling and administrative costs, $220,000. The company sells its units for $45 each.

Additional data follow.

Planned production in units 10,000

Actual production in units 10,000

Number of units sold 8,500

There were no variances.

The income (loss) under absorption costing is:

A. None of the answers is correct.

B. $15,000.

C. $ (7,500).

D. $18,000.

E. $9,000.

The income (loss) under absorption costing is $7,500, which is mentioned in option C for the Favaz began business.

Explanation:

The given is,

Variable manufacturing cost per unit - $9

Fixed manufacturing costs - $60,000

Variable selling and administrative costs per unit - $2

Fixed selling and administrative costs - $220,000

Sells its units for $45 each

Planned and actual production in units 10,000

Number of units sold 8,500

Step:1

Total variable cost = No. of units * Variable cost per unit

= 10,000 * 9

= $90,000

Total variable selling and administrative cost,

= No. of units * Variable selling and administrative cost per unit

= 10,000 * 2

= $20,000

Total cost = Total variable cost + Fixed cost + Total variable selling

and administrative cost + Fixed selling and

administrative costs + Fixed manufacturing costs

= 90,000 + 20,000 + 220,000 + 60,000

= 390,000

Total cost = $390,000

Step:2

Total sales cost = No. of units to be sold * Sales cost per unit

= 8,500 * 45

= 382,500

Total sales cost = $382,500

Step:3

Profit or Loss = Total sales price - Total cost

= 382,500 - 390,000

= - 7,500 (Negative indicates Loss)

Loss = $7500

Result:

The income (loss) under absorption costing is $7,500, which is mentioned in option C for the Favaz began business.