Chapter 21, Problem 5QC

Donovan Company incurred the following costs while producing 500 units: direct materials, $10 per unit; direct labor, $25 per unit; variable manufacturing overhead, $15 per unit; total fixed manufacturing overhead costs, $10,000; variable selling and administrative costs, $5 per unit; total fixed selling and administrative costs, $7,500. There are no beginning inventories.

What is the operating income using absorption costing if 500 units are sold for $100 each?

1. a. $500
2. b. $2,500
3. c. $2,750
4. d. $5,000