Required Informetlon IThe following Information applies to the questions display

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Required Informetlon IThe following Information applies to the questions displayed belowj Inner Secret T Shirt Company produces and sells one product. The following Information pertains to each of the company's first three years of operations: Variable costs per unit: Manufacturing: $26 $14 Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses $578,809 $198,80 During its first year of operations, O'Brien produced 99,000 units and sold 74,000 units. During its second year of operatlons, it produced 81,000 units and sold 101,000 units. In Its third year, O'Brien produced 81,000 units and sold 76,000 units. The selling price of the company's product is $72 per unit.

Explanation / Answer

Construct The Absorption Costing Unit Product Cost Year 1 Year 2 Year 3 Direct Material 26 26 26 Direct labour 14 14 14 Variable Manufacturing overheads 4 4 4 Fixed Manufacturing overheads 5.76 7.04 7.04 (570000/99000) (570000/81000) (570000/81000) Absorption costing unit prroduct cost 49.76 51.04 51.04 Construct the Absorption Costing Income Statement Under FIFO Year 1 Year 2 Year 3 Sales $5,328,000 $7,272,000 5472000 Cost of Goods sold 3682240 5123040 3879040 (74000*49.76) (25000*49.76+76000*51.04) (76000*51.04) Gross Margin $1,645,760 $2,148,960 1592960 Selling and distribution expense 338,000 392,000 342000 Net operating income 1,307,760 1,756,960 1250960

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