Question

In: Accounting

A manufacturing company that produces a single product has provided the following data concerning its most...

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

Selling price -------------------------------------- $126

Units in beginning inventory ------------------- 0

Units produced ----------------------------------  8,500

Units sold ----------------------------------------- 8,300

Units in ending inventory ---------------------    200

Variable costs per unit:

   Direct materials -------------------------------  $36

   Direct labor ------------------------------------  $52

   Variable manufacturing overhead ---------   $2

   Variable selling and administrative -------   $9

Fixed costs:

   Fixed manufacturing overhead ----------- $127,500

   Fixed selling and administrative ----------    91,300

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

a.

$5,300

b.

$3,000

c.

($12,700)

d.

$8,300

Solutions

Expert Solution

d.

$8,300

Working:

Under Absorbtion costing, fixed manufacturing overhead is treated as product cost.It means fixed maufacturing overhead is assigned to each unit.
Fixed Manufacturing overhead per unit = $       1,27,500 /         8,500 = $    15.00
Now, unit cost of goods sold is calculated as follows:
Direct Materials $          36
Direct Labor $          52
Variable Manufactturing overhead $             2
Fixed Manufacturing Overhead $          15
Cost of goods sold $        105
Now, Net Operating income is calculated as follows:
Per Unit Total
Sales $        126 $     10,45,800
Cost of goods sold $        105 $       8,71,500
Gross Profit $          21 $       1,74,300
Selling and admnistrative expense:
Variable $       9.00 $           74,700
Fixed $           91,300
Net Operating Income $             8,300

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