Question

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Oak Mart, a producer of solid oak tables, reports the following data from its second year of business.

Sales price per unit	$	310	per unit
Units produced this year		100,000	units
Units sold this year		103,250	units
Units in beginning-year inventory		3,250	units
Beginning inventory costs
Variable (3,250 units × $130)	$	422,500
Fixed (3,250 units × $75)		243,750
Total	$	666,250
Manufacturing costs this year
Direct materials	$	48	per unit
Direct labor	$	66	per unit
Overhead costs this year
Variable overhead	$	3,200,000
Fixed overhead	$	7,200,000
Selling and administrative costs this year
Variable	$	1,450,000
Fixed		4,200,000

2. Prepare the current-year income statement for the company using absorption costing.

Answer 1

Income statement under absorption costing

Particulars	$	$
Sales [ 103,250 X $ 310]		32,007,500
Beginning inventory [ 3,250 X ( 130 + 75)]	666,250
Direct materials [ 100,000 X 48]	4,800,000
Direct labor [ 100,000 X 66]	6,600,000
Variable overhead cost	3,200,000
Fixed overhead	7,200,000
Less : Cost of goods sold		22,466,250
Gross profit		9,541,250
Less:
Variable Selling and administration cost	1,450,000
Fixed selling and administration cost	4,200,000
		5,650,000
Net income		3,891,250