In: Accounting
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
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 |