Morey Company has just completed its first year of operations. The company\'s ab

Question

Morey Company has just completed its first year of operations. The company's absorption costing income statement for the year appears below Morey Company Income Statement Sales (41,000 units at $44.10 per unit) Cost of goods sold (41,000 units x $22 per unit) $ 1,808,100 902,000 Gross margin Seling and administrative expenses 906,100 512,500 Net operating income $ 393,600 The company's selling and administrative expenses consist of $307,500 per year in fixed expenses and $5 per unit sold in variable expenses. The company's $22 per unit product cost given above is computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($230,000 ÷46,000 units) $ 9 4 4 bsorption costing unit product cost $22

Explanation / Answer

1.

Variable costing income statement

Sales

(41,000 * $44.10)

$18,08,100.00

Variable expenses:

1. Direct materials

(41,000 * $9)

$3,69,000.00

2. Direct labor

(41,000 * $4)

$1,64,000.00

3. Variable manufacturing overhead

(41,000 * $4)

$1,64,000.00

4. Variable selling and administrative expenses

(41,000 * $5)

$2,05,000.00

$9,02,000.00

Contribution margin

$9,06,100.00

Fixed expenses:

1. Fixed manufacturing overhead

$2,30,000.00

2. Fixed selling and administrative expenses

$3,07,500.00

$5,37,500.00

Net operating income

$3,68,600.00

2.

Reconciliation of variable costing and absorption costing net operating income

Variable costing net operating income

$3,68,600.00

Fixed manufacturing overhead {$5 * (46000 - 41000)}

$25,000.00

Absorption costing net operating income

$3,93,600.00

Variable costing income statement

Sales

(41,000 * $44.10)

$18,08,100.00

Variable expenses:

1. Direct materials

(41,000 * $9)

$3,69,000.00

2. Direct labor

(41,000 * $4)

$1,64,000.00

3. Variable manufacturing overhead

(41,000 * $4)

$1,64,000.00

4. Variable selling and administrative expenses

(41,000 * $5)

$2,05,000.00

$9,02,000.00

Contribution margin

$9,06,100.00

Fixed expenses:

1. Fixed manufacturing overhead

$2,30,000.00

2. Fixed selling and administrative expenses

$3,07,500.00

$5,37,500.00

Net operating income

$3,68,600.00

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