Harris Corporation produces a single product. Last year, Harris manufactured 27,

Question

Harris Corporation produces a single product. Last year, Harris manufactured 27,970 units and sold 22,200 units. Production costs for the year were as follows:

Sales were $1,043,400, for the year, variable selling and administrative expenses were $113,220, and fixed selling and administrative expenses were $198,587. There was no beginning inventory. Assume that direct labor is a variable cost.

A $34,043 lower than under absorption costing

B $34,043 higher than under absorption costing

C $69,240 higher than under absorption costing

D $69,240 lower than under absorption costing

  Fixed manufacturing overhead $335,640   Variable manufacturing overhead $240,542   Direct labor $131,459   Direct materials $234,948

Explanation / Answer

Manufactured units                                27,970 Sold units                                22,200 Closing inventory                                  5,770 Variable prodcut costing Direct Material                             234,948 Direct Labor                             131,459 Variable Manufacturing OH                             240,542 Total Variable cost                             606,949 Units Produced                                  27,970 Variable Production cost/unit $                              21.70 Absorption costing Prodcut cost Direct Material                             234,948 Direct Labor                             131,459 Variable Manufacturing OH                             240,542 Fixed Manufacturing OH                             335,640 Total Manufacturing Cost                             942,589 Units Produced                                  27,970 Absorption costing Prodcut cost/unit $                              33.70 Marginal Costing Income Statement Sales revenue                          1,043,400 Variable cost of goods sold @$21.7 per unit                             481,740 Variable selling & Admin cost                             113,220 Total variable cost                             594,960 Contribution margin                             448,440 Fixed costs Fixed Manufacturing OH                             335,640 Fixed selling & Admin cost                             198,587 Total Fixed cost                               534,227 Net Operating Income/(Loss)                             (85,787) Absorption Costing Income Statement Sales revenue                          1,043,400 Cost og goods sold @$33.7 per unit                             748,140 Gross Profit                             295,260 Selling & Admin Variable cost                             113,220 Fixed selling & Admin cost                             198,587 Net Operating Income/(loss)                             (16,547) Difference in net operating Income/(Loss) between marginal & Absorption costing                               (69,240) As the net operating loss in marginal costing is $69240 more than absorption costing , option D is correct

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