Last year, Fabre Company produced 20,000 units and sold 18,000 units at a price

Question

Last year, Fabre Company produced 20,000 units and sold 18,000 units at a price of $12. Costs for last year were as follows:

Direct Materials: $25,000

Direct Labor: 35,000

Variable factory overhead: 12,000

Fixed Factory Overhead: 37,000

Fixed Selling Expense: 7,500

Variable Selling Expense: 9,000

Fixed Administrative Expense: 15,500

Fixed facotry overhead is applies based on expected production. Last year, Fabre expected to produce 20,000 units.

1) Assuming that begining inventory was zero, what is the value of ending inventory under absorbtion costing?

2) Assuming begining inventory was zero, what is the value of ending inventory under variable costing?

3) What is operatiing income for last year under absoption costing?

4) What is operating income for last year under variable costing?

Explanation / Answer

Hi,

Please find the answer as follows:

Part 1:

Value of Ending Inventory = (25000 + 35000 + 12000 + 37000)/20000*2000 = 10900

Part 2:

Value of Ending Inventory = (25000 + 35000 + 12000)/20000*2000 = 7200

Part 3:

Part 4:

Thanks.

Sales
216000 Less Cost of Goods Manuactured

Direct Material 25000
Direct Labor 35000
Variable Factory Overhead 12000
Fixed Factory Overhead 37000

109000
Less Ending Inventory 10900 98100 Gross Profit
117900 Less Fixed Selling Expense
7500 Fixed Administrative Expense
15500 Variable Selling Expense
9000 Net Operating Income
85900

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