Question

Hayes Company operated at normal capacity during the current year, producing 52268 units of its single product. Sales totalled 38018 units at an average price of $22.33 per unit. Variable manufacturing costs were $10.75 per unit, and variable marketing costs were $4.13 per unit sold. Fixed costs were incurred uniformly throughout the year and amounted to $182213 for manufacturing and $61960 for marketing. There were no opening inventories.

What is Hayes operating income (loss) under absorption costing?

Select one:

a. $-114126

b. $39061

c. $88738

d. $105631

Answer 1

Income statement (Absorption costing)

Sales (38,018 x 22.33)	848,942
Variable manufacturing costs (52,268 x 10.75)	561,881
Fixed manufacturing overheads	182,213
Cost of goods produced	744,094
+ Opening stock of finished goods	0
- Closing stock of finished goods (744,094 x 14,250/52,268)	- 202,865
Cost of goods sold	541,229
+ Fixed Selling and administrative overheads	61,960
+ variable marketing costs (38,018 x 4.13)	157,014
Total cost	760,203
Profit (Sales - Total cost)	$88,738

Hayes operating income under absorption costing = $88,738

Correct option is (c)

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