Question

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

Selling price	$	117
Units in beginning inventory		750
Units produced		8,650
Units sold		8,750
Units in ending inventory		650

Variable costs per unit:
Direct materials	$	25
Direct labor	$	42
Variable manufacturing overhead	$	6
Variable selling and administrative expense	$	16
Fixed costs:
Fixed manufacturing overhead	$	69,200
Fixed selling and administrative expense	$	163,000

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.

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

Noreen 5e Rechecks 2019-08-02

Multiple Choice

• $12,000

• $3,700

• $12,800

• $20,100

Answer 1

Income Statement as per Absorption Costing
Sales(8,750 units*$117)		$      10,23,750
Less:Cost of goods sold:
Opening Inventory(750*$81)	$                60,750
Add:Cost of goods manufactured(Note)	$             7,00,650
Cost of goods available for sale	$             7,61,400
Less:Closing Inventory(650*$81)	$                52,650	$        7,08,750
Gross Profit		$        3,15,000
Less:Selling and admin expenses[$163,000+(8,750*$16)]		$        3,03,000
Net Operating Income		$           12,000
Computation of Cost per unit of Finished goods
Units Produced	8650	units
Direct Materials per unit	$                  25.00
Direct labor per unit	$                  42.00
Variable Manufacturing overhead per unit	$                    6.00
Fixed Manufacturing overhead per unit($69,200/8650)	$                    8.00
Cost of goods manufactured per unit	$                  81.00
Total Cost of goods manufactured	$             7,00,650