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In: Accounting

Required information Exercise 19-7 Income reporting under absorption costing and variable costing LO P2 [The following...

Required information

Exercise 19-7 Income reporting under absorption costing and variable costing LO P2

[The following information applies to the questions displayed below.]

Oak Mart, a producer of solid oak tables, reports the following data from its second year of business.

Sales price per unit $ 300 per unit
Units produced this year 120,000 units
Units sold this year 123,750 units
Units in beginning-year inventory 3,750 units
Beginning inventory costs
Variable (3,750 units × $135) $ 506,250
Fixed (3,750 units × $70) 262,500
Total $ 768,750
Manufacturing costs this year
Direct materials $ 50 per unit
Direct labor $ 70 per unit
Overhead costs this year
Variable overhead $ 3,200,000
Fixed overhead $ 7,200,000
Selling and administrative costs this year
Variable $ 1,400,000
Fixed 4,000,000

Exercise 19-7 Part 2

2. Prepare the current year income statement for the company using absorption costing.

Solutions

Expert Solution

Solution

Oak Mart Company
Absorption Costing - Income Statement
Sale Revenue (123750*$300) $3,71,25,000
Beginning Inventory
Variable $5,06,250
Fixed $2,62,500
Manufacturing Cost this year
Direct Material $60,00,000
Direct Labor $84,00,000
variable Overhead $32,00,000
Fixed Overhead $72,00,000
Total Cost of goods sold $2,55,68,750
Gross Profit $1,15,56,250
Selling and administrative cost:
Variable $14,00,000
Fixed $40,00,000
Total Selling administrative cost $54,00,000
Net Operating Income $61,56,250
Net Income under absorption costing is less than Net income under Variable costing by ($6156250 - 6418750) -$2,62,500
Number of units added to (substructed from) Inventory -3750
Fixed Overhead cost per unit $70
Fixed costs added to Inventory (3750*$70) -$2,62,500
Oak Mart Company
Variable Costing - Income Statement
Sale Revenue (123750*$300) $3,71,25,000
Beginning Inventory
Variable $5,06,250
Manufacturing Cost this year
Direct Material (115000*$42) $60,00,000
Direct Labor (115000*$68) $84,00,000
variable Overhead $32,00,000
Selling and administrative cost:
Variable $14,00,000
Total Variable cost $1,95,06,250
Contribution margin $1,76,18,750
Less: Fixed costs
Fixed Overhead $72,00,000
Fixed Selling & Administrative Expenses $40,00,000
Total Fixed Costs $1,12,00,000
Net Income (Loss) $64,18,750

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