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 ($21 per unit)	$2,415,000
Variable expenses:
Variable cost of goods sold	1,380,000
Variable selling expense	345,000
Total variable expenses	1,725,000
Contribution margin	690,000
Fixed expenses:
Fixed manufacturing overhead	450,000
Fixed selling and administrative	115,000
Total fixed expenses	565,000
Net operating income	$125,000

The company produced 90,000 units in May and the beginning inventory consisted of 50,000 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:

$125,000 profit

$0 profit

$125,000 loss

$250,000 profit

Answer 1

Ans. Total no of unit sold = 2415000/21 =115000

Beginning inventory = 50000

Produced = 90000

Closing inventory (50000+90000) -115000 = 25000units

cost of goods sold = (1380000+450000)/115000 = 15.9130

                                                       Calculation of net profit under absorption costing

Sales                                       =    2415000

cost of goods sold (115000X15.9130) = 1830000            

contribution                                             =    585000

Selling and Admn exp.

Variable selling exp.                                =    345000

Fixed cost                                                    =   115000

Net profit                                                      =    125000

Net profit under absorption costing = $125000