Question

Nebula Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations, using super-variable costing.

     

Variable cost per unit:
Direct materials	$20
Fixed costs per year:
Direct labor	$113,400
Fixed manufacturing overhead	$94,500
Fixed selling and administrative expenses	$163,000

The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. The selling price of the company’s product is $150 per unit.

	Year 1	Year 2
Production (units)	6,300	6,300
Sale (units)	6,100	6,500

For external reporting purpose, the company has to use GAAP-consistent absorption accounting.

(Q): The absorption costing income for Year 1 is:

(A): $   

Answer 1

The Absorption Costing Income for Year 1 = $ 425,100

Working:

Nebula Company
Absorption Costing Income Statement
Sales Revenue [6100*150]		$        915,000
Less: COGS
Direct Materials [6100*20]	$     122,000
Direct labor	$     113,400
Fixed Manufacturing Overhead [94500/6300*6100]	$        91,500
Cost of goods sold		$        326,900
Gross margin		$        588,100
Less:Selling general and Administrative Costs
Fixed Selling and Administrative Expenses	$     163,000
Totals Selling, General and Administrative Costs		$        163,000
Net Income/ [loss]		$        425,100