Cutterski Corporation manufactures a propeller. Shown below is Cutterski’s cost structure:
|
|
Variable |
Total fixed |
|
|
cost per |
cost for the |
|
|
propeller |
year |
|
Manufacturing cost |
$114 |
$810,000 |
|
Selling and administrative |
$20 |
$243,000 |
In its first year of operations, Cutterski produced 60,000 propellers but only sold 54,000.
Which costing method (variable or absorption) will generate a higher net operating income in Cutterski”s first year of operations and by how much?
A) variable by $81,000
B) variable by $108,000
C) absorption by $81,000
D) absorption by $108,000