There were no price efficiency or spending variances for

Reference no: EM13577520

Dremmon Corporation uses a standard cost accounting system. Data for the last fiscal year are as follows:

	Units
Beginning inventory of finished goods	100
Production during the year	700
Sales	750
Ending inventory of finished goods	50
	Per Unit
Product selling price	$200
Standard variable manufacturing cost	90
Standard fixed manufacturing cost	20*
Budgeted selling and administrative costs (all fixed)	$45,000
*Denominator level of activity is 750 units for the year.

There were no price, efficiency, or spending variances for the year, and actual selling and administrative expenses equaled the budget amount. Any volume variance is written off to cost of goods sold in the year incurred. There are no work-in-process inventories.

If Dremmon uses absorption costing, its operating income earned in the last fiscal year was:

A. $28,000

B. $30,000

C. $21,500

D. $27,000

I know the answer is C., but my question is: can the production variance every be negative, meaning can it be subtracted from cost instead of adding to it? Also why is the production variance included for absorption costing if absorption (full) costing's fixed manufacturing is based on sales of that current period?

Reference no: EM13577520

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