Question

Oak Mart, a producer of solid oak tables, reports the following data from its second year of business.

Sales price per unit	$	310	per unit
Units produced this year		105,000	units
Units sold this year		108,500	units
Units in beginning-year inventory		3,500	units
Beginning inventory costs
Variable (3,500 units × $130)	$	455,000
Fixed (3,500 units × $70)		245,000
Total	$	700,000
Manufacturing costs this year
Direct materials	$	40	per unit
Direct labor	$	62	per unit
Overhead costs this year
Variable overhead	$	3,200,000
Fixed overhead	$	7,400,000
Selling and administrative costs this year
Variable	$	1,450,000
Fixed		4,400,000

Exercise 19-7 Part 2

2. Prepare the current-year income statement for the company using absorption costing.

Answer 1

Oak Mart
Absorption Costing Income Statement
Sales [$310 x 108,500]		$ 33,635,000
Cost of goods Sold:
Direct material [$40 x 105,500]	$ 4,220,000
Direct labor [$62 x 105,500]	$ 6,541,000
Manufacturing overhead [$3,200,000 + $7,400,000]	$ 10,600,000
Cost of goods sold		$ 21,361,000
Gross profit		$ 12,274,000
(Less): Selling and administrative expense
Variable	$ 1,450,000
Fixed	$ 4,400,000
Total selling and administrative expense		$ 5,850,000
Net Income		$ 6,424,000