Question

Inc. manufactures and sells one product. The following information pertains to each of the company's first two years of operations:

Selling price per unit	$200
Variable costs per unit:
Manufacturing:
Direct materials	$68
Direct labor	$40
Variable manufacturing overhead	$11
Variable selling and administrative expense	$5
Fixed costs per year:
Fixed manufacturing overhead	$49,000
Selling and administrative expense	$111,000

Year	1	2
Production (units)	5,000	4,700
Sales (units)	4,600	5,100

Q.) What is net operating income under absorption costing in Year 2? (Do not round intermediate calculations. Round the final answer to the nearest dollars.)

Answer 1

Particulars	Amount (in $)	Amount (in $)
Sales ($ 200 x 5,100 units)		$ 1,020,000
Less: Costs of Goods Sold
Direct materials (4,700 units x $ 68)	395,600
Direct Labor (4,700 units x $ 40)	184,000
Variable Manufacturing Overhead (4,700 units x $ 11)	50,600
Fixed Manufacturing Overhead	$49,000
Costs of beginning inventory	$ 51,520
Total Costs of Goods Sold		($730,720)
Gross profit		$ 289,280
Less: Variable Selling expenses                       ($5 x 5,100 units)		($25,500)
Less: Fixed selling and administrative expenses		($111,000)
Net Income under Absorption Costing		$ 152,780
Particulars	Amount (in $)
Beginning inventory =   5,000 (-) 4,600                                             = 400 Units
Direct Material ( 400 units x $68)	$ 27,200
Direct Labor ( 400 units x $40)	$ 16,000
Variable Manufacturing Overhead ( 400 units x $ 11)	$ 4,400
Fixed Manufacturing costs (49,000 / 5,000 x 400)	3,920
Costs of beginning inventory	$ 51,520