Question

QUESTION 2

1. Company ABC produces a single product. This year the company produced 20,000 units but only sold 15,000 units at the price of $40 each. Variable manufacturing costs (including direct materials, director labor, and variable manufacturing overhead) total $10 per unit. Variable selling and administrative cost is $5 per unit. Fixed manufacturing overhead cost is $100,000 each year. Fixed selling and administrative cost is $80,000 each year. There is no inventory at the beginning of this year.

Required: (Please note that you should answer the questions in Word offline and please do NOT answer in the Blackboard!!!)

1. What is the net operating income this year using the absorption costing method? Please prepare the absorption costing income statement.
2. What is the net operating income this year using the variable costing method? Please prepare the variable costing income statement.

Answer 1

Absorption costing Income statement
		Amount in $
Sales	(15000*40)	$          6,00,000
Cost of Goods Sold	(15000*15)	$        -2,25,000
(10+(100000/20000))
Gross profit		$          3,75,000
Operating Expenses:
Selling Expenses and Administrative cost		$        -1,55,000
(15000*5)+80000
= Net operating income		$          2,20,000
Variable costing income statement
		Amount in $
Sales	15000*4	$          6,00,000
Variable cost:
– Variable cost	15000*15	$        -2,25,000
= Contribution margin		$          3,75,000
Fixed cost:
- Fixed manufacturing overhead	$         1,00,000
- Fixed selling and Administrative cost	$             80,000	$        -1,80,000
= Net operating income		$          1,95,000