Question

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Cool Sky reports the following costing data on its product for its first year of operations. During this first year, the company produced 44,000 units and sold 36,000 units at a price of $110 per unit.
  

Manufacturing costs
Direct materials per unit	$	42
Direct labor per unit	$	16
Variable overhead per unit	$	5
Fixed overhead for the year	$	396,000
Selling and administrative costs
Variable selling and administrative cost per unit	$	11
Fixed selling and administrative cost per year	$	115,000

1b. Assume the company uses absorption costing. Prepare its income statement for the year under absorption costing.

Answer 1

Cost per unit

	Absorption Costing
Direct materials per unit	$42
Direct labour per unit	$16
Variable overhead per unit	$5
Fixed overhead cost per unit	$9
Cost per Unit	$72

Income Statement using Absorption Costing

Sales(36000*$110)	3960000
Cost of goods sold(36000*72)	-2592000
Gross profit	1368000
Selling general and administrative expenses:
Variable selling and administrative expenses (36,000 * 11)	396000
Fixed selling and administrative cost	115000
Net Income	857000

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