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Lockhart Products: Absorbtion Versus Variable Costing

Lockhart Products produces a single product. During 2009 the company incurred the following costs:

Variable product costs= $8/ per unit
Variable period costs= $2/ per unit
Total fixed product costs= $21,000
Total fixed period costs= $10,000

Lockhart had no units in beginning inventory. During 2009, 6,000 units were produced and 5,000 units were sold. Which of the following statements is true when comparing net income using absorption versus variable costing?

a) Net income will $3,500 higher using absorption costing than using variable costing.
b) Net income will $3,500 lower using absorption costing than using variable costing.
c) Net income will $4,200 higher using absorption costing than using variable costing.
d) Net Income will $4,200 lower using absorption costing than using variable costing.

Solution Preview

In this example, we can follow the same form as the last example.

5000 x 8 = 40,000
5000 x 2 = 10,000
21000 / 6000 = 3.50 per ...

Solution Summary

This solution provides the correct answer the explanation and references to the Lockhart Products net income/variable costing multiple choice question listed. Includes 1 reference.

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