Question

Aces Inc., a manufacturer of tennis rackets, began operations this year. The company produced 5,500 rackets and sold 4,400. Each racket was sold at a price of $85. Fixed overhead costs are $68,750 and fixed selling and administrative costs are $64,700. The company also reports the following per unit variable costs for the year:

Variable product costs	$	24.50
Variable selling and administrative expenses	$	1.50

Prepare an income statement under absorption costing.

ACES INC.
Absorption Costing Income Statement
Sales		$374,000
Less: Variable costs
Variable production costs
Fixed overhead costs
Cost of goods sold
Gross margin
Selling general and administrative expenses
Fixed selling and administrative costs
Variable selling and administrative expenses
Net income (loss)

Answer 1

Sales (4,400 units * $85)		$374,000
Less : Cost of goods sold
... Variable Product costs (4,400 * $24.50)	$107,800
... Fixed overhead costs ($68,750 / 5,500) * 4,400	$55,000
Cost of goods sold		$162,800
Gross margin		$211,200
Less : Selling and administrative expenses
... Fixed selling and administrative expenses	$64,700
... Variable selling and administrative expenses (4,400 * $1.50)	$6,600
Selling and administrative expenses		$71,300
Net income (loss)		$139,900