Question

Naomi company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations, using super-variable costing.

     

Variable cost per unit:
Direct materials	$10
Fixed costs per year:
Direct labor	$113,400
Fixed manufacturing overhead	$94,500
Fixed selling and administrative expenses	$233,000

The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. The selling price of the company’s product is $150 per unit.

	Year 1	Year 2
Production (units)	6,300	6,300
Sale (units)	5,900	6,700

For external reporting purpose, the company has to use GAAP-consistent absorption accounting.

Q:) The absorption costing income for Year 1 is:

A:) $ _____???

Answer 1

--Requirement: Absorption Costing Income for Year 1 = $ 398300

Sales	5900 units x $ 150	$885,000
Less: Cost of Goods Sold
Direct Material	5900 units x $ 10	$59,000
Fixed Direct Labor	($113400 / 6300 units) x 5900 units	$106,200
Fixed manufacturing overhead	($94500 / 6300 units) x 5900 units	$88,500
Gross Profits		$631,300
Less: Operating expenses
Fixed selling & admin expenses		$233,000
Absorption Costing Income for Year 1		$398,300 [Answer]