Question

In: Accounting

Harris Corporation produces a single product. Last year, Harris manufactured 30,420 units and sold 24,900 units....

Harris Corporation produces a single product. Last year, Harris manufactured 30,420 units and sold 24,900 units. Production costs for the year were as follows: Fixed manufacturing overhead $395,460 Variable manufacturing overhead $258,570 Direct labor $142,974 Direct materials $234,234 Sales were $1,207,650, for the year, variable selling and administrative expenses were $136,950, and fixed selling and administrative expenses were $185,562. There was no beginning inventory. Assume that direct labor is a variable cost. Under variable costing, the company's net operating income for the year would be: $27,048 lower than under absorption costing $27,048 higher than under absorption costing $71,760 higher than under absorption costing $71,760 lower than under absorption costing

Solutions

Expert Solution

Correct answer--- $71,760 lower than under absorption costing

Income Statement

Absorption costing

Sales

$   1,207,650.00

Cost of Goods sold

$       844,110.00

Gross profit

$       363,540.00

Selling and Administrative expenses

$       322,512.00

Net Operating Income

$         41,028.00

Income Statement

Variable Costing

Sales Revenue

$     1,207,650.00

Variable cost

Variable production cost

$        520,410.00*

Variable selling expenses

$        136,950.00

Total Variable cost

$        657,360.00

Contribution margin

$        550,290.00

Fixed Production cost

$        395,460.00

Fixed selling expenses

$        185,562.00

Total Fixed cost

$        581,022.00

Net income

$        (30,732.00)

*(258570+142974+234234)/30420 x 24900

Ending Inventory and Cost of goods sold as per Absorption costing

Units in ending inventory

                    5,520

Units sold

                 24,900

Units produced

                 30,420

variable manufacturing cost

$      258,570.00

Direct labor cost cost

$      142,974.00

Direct material cost

$      234,234.00

Fixed manufacturing overhead cost

$      395,460.00

Total Manufacturing cost

$ 1,031,238.00

Cost per unit produced (1031238/30420)

$                33.90

Ending inventory cost (33.90 x 5520)

$      187,128.00

Cost opf goods sold (33.90 x 24900)

$      844,110.00

Sales

$ 1,207,650.00


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