Northern Company reported the following information for the first three years of operations. Year 1 Year 2 Year 3 Units produced 15,000 12,000 $4 $24,000 $3 $14,000 20,000 20,000 19,200 $4 $24,000 $24,000 $3 $14,000 $14,000 24,000 24,000 26,000 $4 Units sold Variable production cost per unit Fixed production cost Variable selling cost per unit Fixed selling cost Normal overhead base (in units) $3 16,000 Assume fixed overhead is applied based on the normal overhead base for each year. 13. If the company had an operating income of $18,500 in Year 2 under variable costing, what was their operating income under absorption costing in Year 2? a. $22,300 b. $18,700 c. $18,300 d. $19,300 e. $19,460 f. $18,260 g. $19,780 h. None of the above If the company had an operating income of $37,400 in Year 3 under absorption costing, what was their operating income under variable costing in Year 3? a. $38,900 b. $36,700 c. $40,160 d. $39,400 e. $38,500 f. $39,800 g. $40,400 h. None of the aboye 14.
Northern Company reported the following information for the first three years of operations. Year 1 Year 2 Year 3 Units produced 15,000 12,000 $4 $24,000 $3 $14,000 20,000 20,000 19,200 $4 $24,000 $24,000 $3 $14,000 $14,000 24,000 24,000 26,000 $4 Units sold Variable production cost per unit Fixed production cost Variable selling cost per unit Fixed selling cost Normal overhead base (in units) $3 16,000 Assume fixed overhead is applied based on the normal overhead base for each year. 13. If the company had an operating income of $18,500 in Year 2 under variable costing, what was their operating income under absorption costing in Year 2? a. $22,300 b. $18,700 c. $18,300 d. $19,300 e. $19,460 f. $18,260 g. $19,780 h. None of the above If the company had an operating income of $37,400 in Year 3 under absorption costing, what was their operating income under variable costing in Year 3? a. $38,900 b. $36,700 c. $40,160 d. $39,400 e. $38,500 f. $39,800 g. $40,400 h. None of the aboye 14.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question

Transcribed Image Text:### Northern Company Financial Data Overview
Northern Company reported the following financial and operational data for the first three years of its operations:
| | Year 1 | Year 2 | Year 3 |
|---|--------|--------|--------|
| **Units produced** | 15,000 | 20,000 | 24,000 |
| **Units sold** | 12,000 | 19,200 | 26,000 |
| **Variable production cost per unit** | $4 | $4 | $4 |
| **Fixed production cost** | $24,000 | $24,000 | $24,000 |
| **Variable selling cost per unit** | $3 | $3 | $3 |
| **Fixed selling cost** | $14,000 | $14,000 | $14,000 |
| **Normal overhead base (in units)** | 20,000 | 24,000 | 16,000 |
Assume fixed overhead is allocated based on the normal overhead base for each year.
#### Questions:
**13.** If the company had an operating income of **$18,500** in Year 2 under variable costing, what was their operating income under absorption costing in Year 2?
- a. $22,300
- b. $18,700
- c. $18,300
- d. $19,300
- e. $19,460
- f. $18,260
- g. $19,780
- h. None of the above
**14.** If the company had an operating income of **$37,400** in Year 3 under absorption costing, what was their operating income under variable costing in Year 3?
- a. $38,900
- b. $36,700
- c. $40,160
- d. $39,400
- e. $38,500
- f. $39,800
- g. $40,400
- h. None of the above
### Explanation:
These questions test your understanding of the differences between absorption and variable costing methods. Under absorption costing, all manufacturing costs (variable and fixed) are included in the cost of a product, whereas under variable costing, only variable manufacturing costs are included. The difference in operating income between
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