Farron Corporation, which has only one product, has provided the following data
ID: 2424114 • Letter: F
Question
Farron Corporation, which has only one product, has provided the following data concerning its most recent month of operations:
What is the net operating income for the month under absorption costing?
Selling price $172 Units in beginning inventory 0 Units produced 9,700 Units sold 9,300 Units in ending inventory 400 Variable costs per unit: Direct materials $33 Direct labor $75 Variable manufacturing overhead $21 Variable selling and administrative $25 Fixed costs: Fixed manufacturing overhead $145,500 Fixed selling and administrative $10,300Explanation / Answer
Under absorption costing, net operating income (loss) = sales - cost of goods sold - selling and administrative expenses.
sales = units sold*selling price per unit = 9300*$172 = $1,599,600
cost of goods sold (variable) = direct materisls+direct labor+variable manufacturing overhead = 33+75+21 = $129. Total cost = units sold*129 = 9300*129 = $1,199,700
Total cost of goods sold = 1,199,700+fixed manufacturing overhead = 1199700+145500/9700*9300 = 1199700+139500 = 1,339,200. The fixed costs are absorbed by the total units manufactured.
After this the selling and administrative expenses will be deducted. The fixed costs for selling is with regards to the sales of 9300 units and thus the full amount will be absorbed.
The income statement and net income is shown below:
Units Price/cost per unit Total ($) Sales 9,300 172 1,599,600 Less: cost of goods sold variable 9,300 129 1,199,700 fixed 139,500 Total cost of goods sold 1,339,200 Gross margin 260,400 less: SG&A Varible costs 9,300 25 232,500 Fixed costs 10,300 Total SG&A 242,800 Net income 17,600Related Questions
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