Question

11

Green Company sells its product for $11100 per unit. Variable costs per unit are: manufacturing, $5600; and selling and administrative, $125. Fixed costs are: $51000 manufacturing overhead, and $61000 selling and administrative. There was no beginning inventory at 1/1/18. Production was 34 units per year in 2018–2020. Sales were 34 units in 2018, 30 units in 2019, and 38 units in 2020. Income under absorption costing for 2020 is

$79650.

$85250.

$86250.

$92250.

Answer 1

Variable cost per unit = $5,600

Fixed manufacturing cost = $51,000

Production = 34 units

cost per unit = Variable cost per unit + Fixed manufacturing cost/Production

= 5,600+51,000/34

= 5,600+1,500

= $7,100

Number of units sold in 2019 = 30

Ending inventory in 2019 = Production- Number of units sold in 2019

= 34-30

= 4

Cost of ending inventory in 2019 = Ending inventory in 2019 x cost per unit

= 4 x 7,100

= $28,400

Income Statement for 2020
Sales (11,100 x 38)		$421,800
Cost of goods sold:
Production variable manufacturing cost (5,600 x 34)	190,400
Fixed manufacturing cost	51,000
Cost of goods manufactured	241,400
Beginning inventory of finished goods	28,400
Cost of goods sold:		-269,800
Gross profit		$152,000
Operating expenses:
Variable selling and administrative expenses (125 x 38)	4,750
Fixed selling and administrative expenses	61,000
Total operating expense		-65,750
Net Income		$86,250

Third option is correct.