Question

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

Selling price	$108
Units in beginning inventory	0
Units produced	8,900
Units sold	8,500
Units in ending inventory	400

Variable costs per unit:
Direct materials	$ 17
Direct labor	$ 59
Variable manufacturing overhead	$ 5
Variable selling and administrative expense	$ 9
Fixed costs:
Fixed manufacturing overhead	$133,500
Fixed selling and administrative expense	$ 8,700

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

Answer 1

(1)

Inventory Consumed=Opening Inventory+Produced-Closing Inventory=0+8900-400=8500

(2)

Total Product Cost =Direct Material + Direct Labour + Variable Manufacturing Overheads+Fixed Manufacturing Overheads

=(8500*17)+(8500*59)+(8500*5)+133500

=$822,000

(3)

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