Question

Crystal Corporation produces a single product. The company's variable costing income statement for the month of May appears below:

Crystal Corporation Income Statement For the month ended May 31
Sales ($17 per unit)	$3,102,500
Variable expenses:
Variable cost of goods sold	1,825,000
Variable selling expense	547,500
Total variable expenses	2,372,500
Contribution margin	730,000
Fixed expenses:
Fixed manufacturing overhead	405,000
Fixed selling and administrative	182,500
Total fixed expenses	587,500
Net operating income	$142,500

The company produced 135,000 units in May and the beginning inventory consisted of 95,000 units. Variable production costs per unit and total fixed costs have remained constant over the past several months.

Under absorption costing, for May the company would report a:

$285,000 profit

$142,500 profit

$0 profit

$142,500 loss

Answer 1

Answer is $0 Profit

Number of units sold = Sales / Selling Price per unit
Number of units sold = $3,102,500 / $17
Number of units sold = 182,500

Number of units in ending inventory = Beginning inventory + Units produced - Number of units sold
Number of units in ending inventory = 95,000 + 135,000 - 182,500
Number of units in ending inventory = 47,500

Fixed Manufacturing Overhead per unit = Fixed Manufacturing Overhead / Number of units produced
Fixed Manufacturing Overhead per unit = $405,000 / 135,000
Fixed Manufacturing Overhead per unit = $3.00

Variable Cost of Goods Sold per unit = Variable Cost of Goods Sold / Number of units sold
Variable Cost of Goods Sold per unit = $1,825,000 / 182,500
Variable Cost of Goods Sold per unit = $10.00

Cost per unit = Variable Cost of Goods Sold per unit + Fixed Manufacturing Overhead per unit
Cost per unit = $10.00 + $3.00
Cost per unit = $13.00