Question

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

Selling price -------------------------------------- $126

Units in beginning inventory ------------------- 0

Units produced ----------------------------------  8,500

Units sold ----------------------------------------- 8,300

Units in ending inventory ---------------------    200

Variable costs per unit:

   Direct materials -------------------------------  $36

   Direct labor ------------------------------------  $52

   Variable manufacturing overhead ---------   $2

   Variable selling and administrative -------   $9

Fixed costs:

   Fixed manufacturing overhead ----------- $127,500

   Fixed selling and administrative ----------    91,300

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

	a.	$5,300
	b.	$3,000
	c.	($12,700)
	d.	$8,300

Answer 1

Answer:

Net operating income for the month under absorption costing =$8300

Working notes for the above answer is as under :

Unit product cost under absorption costing:

Direct materials	36
Direct labor	52
Variable manufacturing overhead	2
Fixed manufacturing overhead cost ($127500 ÷ 8500 units produced)	15.0
Absorption costing unit product cost	105

Sales ($126per unit × 8300 units)	1045800
Cost of goods sold ($105 per unit × 8300 units)	871500
Gross margin 425,500	174300
Selling and administrative expenses ($9 per unit × 8300 units + $91,300)	166000
Net operating income	8300

Net operating income for the month under absorption costing =$8300