Question

Red and White Company reported the following monthly data:
Units produced 2,500 units
Sales price $ 30 per unit
Direct materials $ 2 per unit
Direct labor $ 3 per unit
Variable overhead $ 4 per unit
Fixed overhead $ 8,500 in total

What is Red and White's net income under absorption costing if 1,030 units are sold and selling and administrative expenses are $14,500?

• ($1,370)

• ($3,500)

• $3,628

• $7,130

• $13,130

Answer 1

	Answer : $3,628
	Workings:
	Red and White Company
	Sales (1,030 units * $30 per unit)		$30,900
	Less: Variable costs
	Direct Materials (1,030 units * $2 per unit)	$2,060
	Direct Labor (1,030 units * $3 per unit)	$3,090
	Variable overhead (1,030 units * $4 per unit)	$4,120
	Total Variable costs		$9,270
	Contribution Margin		$21,630
	Less: Fixed Overhead (1,030 units * $8,500 / 2,500 units)	$3,502
	Selling & Administrative expenses	$14,500
	Total Fixed Costs		$18,002
	Net Income		$3,628