Question

Farris Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price	$	112
Units in beginning inventory		0
Units produced		8,950
Units sold		8,550
Units in ending inventory		400

Variable costs per unit:
Direct materials	$	18
Direct labor	$	60
Variable manufacturing overhead	$	6
Variable selling and administrative expense	$	10
Fixed costs:
Fixed manufacturing overhead	$	134,250
Fixed selling and administrative expense	$	8,800

What is the net operating income for the month under absorption costing?

Answer 1

Farris Corporation
Income Statement
Absorption costing
Sales	$      957,600.00
Cost of Goods sold	$      846,450.00
Gross profit	$      111,150.00
Selling and Administrative expenses	$        94,300.00
Net Operating Income	$        16,850.00

Net Operating income under Absorption costing= $16850

Working Notes

Total Fixed Manufacturing Overheads	$ 134,250.00
Units Produced	8950
Cost per unit produced	$            15.00
Fixed cost assigned to goods sold (15 x 8550)	$ 128,250.00
Fixed cost assigned to Ending Inventory (15 x 400)	$      6,000.00

Cost of goods sold
Direct material	$ 153,900.00
Direct labor	$ 513,000.00
Variable manufacturing overheads	$    51,300.00
Fixed manufacturing overheads	$ 128,250.00
Total Cost of Goods sold	$ 846,450.00