Question

Farron Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price	$152
Units in beginning inventory	0
Units produced	9,450
Units sold	9,050
Units in ending inventory	400
Variable costs per unit:
Direct materials	$28
Direct labor	$70
Variable manufacturing overhead	$16
Variable selling and administrative	$20
Fixed costs:
Fixed manufacturing overhead	$141,750
Fixed selling and administrative	$9,800

What is the net operating income for the month under absorption costing?

$34,250

$11,350

$17,350

$6,000

Answer 1

Net operating income for the month under absorption costing = $17350

Explanation;

Income Statement (Under Absorption costing method)
Sales (9050 * $152)		$1375600
Less: Cost of goods sold;
Beginning inventory	$0
Add: Cost of goods manufactured (9450 * $129)	$1219050
Goods available for sale	$1219050
Less: Ending inventory (400 * $129)	($51600)
Cost of goods sold		($1167450)
Gross margin		$208150
Less: Selling and administrative expenses;
Fixed	$9800
Variable (9050 * $20)	$181000	($190800)
Net operating income		$17350