Question

Toby Company produces and sells a specialized product for $80 per unit. In the first month of operation, 3,000 units were produced and 2,250 units were sold. The company did not have any material or work in process inventory at the end of the month. Actual fixed costs are the same as the amount budgeted for the month. Fixed manufacturing cost is allocated to products based on units produced. Other information for the month includes: Variable manufacturing costs $38 per unit Variable marketing costs $ 2 per unit Fixed manufacturing costs $60,000 per month Administrative expenses, all fixed $12,000 per month What is operating income under absorption costing? What is operating income under variable costing?

Answer 1

Absorption Costing net income :

Sales (2250*80)		180000
Less: Cost of goods sold
Variable Cost of goods sold (2250*38)	85500
Fixed cost of goods sold (60000/3000*2250)	45000
Total Cost of goods sold		130500
Gross profit		49500
Selling and administrative expense (2250*2+12000)		16500
Income from operation		33000

variable Costing net income :

Sales (2250*80)		180000
Less: Cost of goods sold
Variable Cost of goods sold (2250*38)	85500
Variable marketing expense(2250*2)	4500
Total Variable cost		90000
Contribution margin		90000
Fixed manufacturing Cost	60000
Fixed administrative expense	12000	72000
Income from operation		18000