Question

Hayes Company operated at normal capacity during the current year, producing 49034 units of its single product. Sales totalled 38370 units at an average price of $22.60 per unit. Variable manufacturing costs were $10.00 per unit, and variable marketing costs were $4.72 per unit sold. Fixed costs were incurred uniformly throughout the year and amounted to $175360 for manufacturing and $78546 for marketing. There were no opening inventories. What is Hayes operating income (loss) under absorption costing? Select one: a. $86587 b. $48450 c. $103670 d. $-58190

Answer 1

WORKING NOTES : 1
	beginning Inventory	-	Units
	Unit Produced =	49,034	Units
	Unit Sold	38,370	Units
	Closing Stock	10,664	Units
WORKING NOTES : 2
	Calculation of cost of production units by using absorption and variable Costing
	Particulars	Absorption Costing Amount
	Variable Manufacturing cost	$                          10.00
	Fixed Manufacturing Overhead ($ 175,360 / 49,034)	$                             3.58
	Cost of Production	$                          13.58	(Do Not Round)
Solution:
	ABOSRPTION COSTING INCOME STATEMENTS	Absorption Costing
	Particulars	Amount
	Sales (38,370 X $ 22.60)	$                      867,162
	Cost of Goods Sold
	Beginning inventory	$                                 -
	Cost of Goods Manufactured (49,034 X $ 13.58)	$                      665,700
	Less: Ending Inventory (10,664 X 13.58)	$                      144,778
	Cost of Goods Sold	$                      520,922
	Gross Profit	$                      346,240
	Less : Selling and adminstrative Expenses
	Variable (38,370 X $ 4.72)	$                      181,106
	Fixed	$                        78,546
	Net Income	$                        86,587
Answer = Option A = $ 86,587