Question

Prepare an income statement based on the absorption costing concept

Answer 1

Units Sold	55000	units
Sales Price per unit	$                  78.00
Units Produced	60000	units
Direct Materials per unit	$                  28.00
Direct labor per unit	$                  12.00
Variable Manufacturing overhead per unit	$                    2.00
Variable selling and admin expenses per unit	$                    3.00
Fixed Manufacturing overhead	$           12,60,000
Fixed selling and admin expenses	$             6,54,000
Income Statement as per Absorption Costing
Sales(55,000 units*$78)		$      42,90,000
Less:Cost of goods sold:
Opening Inventory	0
Add:Cost of goods manufactured(Note)	$           37,80,000
Cost of goods available for sale	$           37,80,000
Less:Closing Inventory(5000 units*$63)	$             3,15,000	$      34,65,000
Gross Profit		$        8,25,000
Less:Selling and admin expenses		$        7,64,500
Net Operating Income		$           60,500
Computation of Cost of goods manufactured
Units Produced	60000	units
Direct Materials per unit	$                  28.00
Direct labor per unit	$                  12.00
Variable Manufacturing overhead per unit	$                    2.00
Fixed Manufacturing overhead per unit($1,260,000/60,000)	$                  21.00
Cost of goods manufactured per unit	$                  63.00
Total Cost of goods manufactured	$           37,80,000
Computation of Selling and admin expenses
Total Sales made	55000	units
Variable selling and admin expenses per unit	$                    3.00
Fixed selling and admin expenses per unit($654,000/60,000)	$                  10.90
Selling and admin expenses per unit	$                  13.90
Total Selling and admin expenses	$             7,64,500