Question
In: Accounting
Murdoch Munchies has the following cost information:Variable S&A costs$2/unitDirect materials$7.5/unitVariable overhead$2.25/unitDirect labor$1.25/unitFixed S&A costs$50,000Fixed overhead$75,000If 25,000...
Murdoch Munchies has the following cost information:Variable S&A costs$2/unitDirect materials$7.5/unitVariable overhead$2.25/unitDirect labor$1.25/unitFixed S&A costs$50,000Fixed overhead$75,000If 25,000 units are produced and sold at a price of $20 what is the net income under variable costing and absorption costing, respectively?A. $0, $0B. $125,000, $50,000C. $50,000, $50,000D. $125,000, $125,000
Solutions
Expert Solution
Correct answer-------------C. $50,000, $50,000
Working
Both the absorption costing and variable costing will show the same net income because there is no Ending inventory, hence all fixed overhead will be allocated to units sold.
Variable costing income statement is prepared below
| Variable costing income statement | ||
| Sales | $ 500,000.00 | |
| Variable Cost | ||
| Variable cost of Goods Sold [(7.5+2.25+1.25) x 25000] | $ 275,000.00 | |
| Variable Selling & administrative | $ 50,000.00 | |
| Total variable cost | $ 325,000.00 | |
| Contribution margin | $ 175,000.00 | |
| Fixed Costs: | ||
| Fixed Factory overhead | $ 75,000.00 | |
| Fixed Selling & Administrative | $ 50,000.00 | |
| Total Fixed Cost | $ 125,000.00 | |
| Net Income | $ 50,000.00 | |
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