Question

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?

Answer 1

• 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