Question

In: Accounting

a company reports the following information for the current year. all beginning inventory amounts =$0 this...

a company reports the following information for the current year. all beginning inventory amounts =$0 this year.

unites produced this year 43,000 units, units sold this year 25,800, direct materials 27, direct labor 29 variable overheard 129,000 fixed overheard $215,000.

units sold this year 25,800. Given the data, and the knowledge that the product is sold for $83 per unit and operating expenses are $380,000, compute the net income under absorption and variable costing?

Solutions

Expert Solution

  • Net Income under both the methods can be calculated by preparing Income Statement for both the methods.

Income Statement - Absorption Costing

Sales [25800 units x $ 83]

$     2,141,400.00

Less: Cost of Goods Sold

    Direct Material [25800 x 27]

$          696,600.00

    Direct labor [25800 x 29]

$          748,200.00

    Overheads [(129000+215000) x 25800/43000]

$          206,400.00

Cost of Goods Sold

$     1,651,200.00

Gross Profits

$        490,200.00

Operating Expenses

$        380,000.00

Net Income

$        110,200.00 = ANSWER

Income Statement - Variable Costing

Sales [25800 units x $ 83]

$                2,141,400.00

Less: Variable costs

   Direct Material [25800 x 27]

$          696,600.00

    Direct labor [25800 x 29]

$          748,200.00

    Variable Overheads

$          129,000.00

Total Variable cost

$                1,573,800.00

Contribution margin

$                    567,600.00

Less: Fixed cost and expenses

   Fixed Overheads

$          215,000.00

    Operating Expenses

$          380,000.00

Total Fixed cost

$                    595,000.00

Net Income (LOSS)

$                    (27,400.00) = ANSWER


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