In: Accounting
Neef Corporation has provided the following data for its two most recent years of operation:
selling price per unit | $84 |
manufacturing costs: | |
variable manufacturing cost per unit produced: | |
Direct materials | $12 |
Direct labor | $15 |
Variable manufacturing overhead | $4 |
Fixed manufacturing overhead per year | $432,000 |
Selling and administrative expenses: | |
Variable selling and administrative expense per unit sold | $5 |
fixed selling and administrative expense per year | $61,000 |
year 1 | year 2 | |
units in beginning inventory | 0 | 3,000 |
units produced | 12,000 | 9,000 |
units sold | 9,000 | 10,000 |
units in ending inventory | 3,000 | 20,000 |
The net operating income (loss) under absorption costing in Year 2 is closest to:
A. 136,000
B. 75,000
C. 186,000
*it is not 87,000
Answer
B. 75,000
Explanation :
Note : In Year 2 ,out of 10,000 units sold , 3,000 units are from beginning inventory . Thus for 3,000 units fixed manufacturing overhead rate for Year 1 shall be applied & for 7,000 units fixed manufacturing overhead rate for Year 2 shall be applied.
Computation of net operating income (loss) under absorption costing in Year 2
Amount ($) | |
---|---|
Sales (10,000 units * $84( | 840,000 |
Less : Variable costs [($12 + $5 + $4) * 10,000 units] | (210,000) |
Less : Fixed manufacturing overhead [(3,0000 * $36) + (7,000* $48) | (444,000) |
Gross Margin | 186,000 |
Less : Selling and administrative expenses [(10,000 * $5) + $61,000] | (111,000) |
Net operating income | $75,000 |
Note : The Direct labor rate given in the question must be $ 5 instead of $15 . As by taking rate as $15 , answer will not match with any of the options given in the question.