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In: Accounting

A business operated at 100% of capacity during its first month, with the following results: Sales...

A business operated at 100% of capacity during its first month, with the following results:

Sales (106 units) $498,200
Production costs (132 units):
   Direct materials $67,065
   Direct labor 17,123
   Variable factory overhead 29,965
   Fixed factory overhead 28,539 142,692
Operating expenses:
   Variable operating expenses $6,403
   Fixed operating expenses 4,854 11,257

The amount of operating income that would be reported on the absorption costing income statement is

a.$395,275

b.$400,129

c.$372,357

d.$498,068

Solutions

Expert Solution

Correct option is: C. $372,357
Workings:
Under Absorption Costing
Unit product cost:
Direct Material (67065/132) $             508
Direct Labour (17123/132) $             130
Variable Manufaturing overhead (29965/132) $             227
Fixed Manufacturing overhead (28539/132) $             216
Unit product cost $         1,081
Absorbtion Costing Income Statement
Sales $   4,98,200
Less: Cost of Goods Sold (106 X $1081) $   1,14,586
Gross Margin $   3,83,614
Less: Operating expenses:
Variable Operating expenses $         6,403
Fixed Operating expenses $         4,854
Net Operating Income $   3,72,357

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ekkarill92 answered 2 years ago
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