****Please type out the answer. Compute net operating income under absorption co
ID: 2432842 • Letter: #
Question
****Please type out the answer.
Compute net operating income under absorption costing based on the following data.
Unit cost for direct materials $10
Unit cost for direct labor 15
Unit cost for variable manufacturing overhead 7
Unit variable selling and administrative expense 2
Total fixed manufacturing overhead $100,000
Total fixed selling and administrative expense 80,000
Units in beginning inventory 0
Units produced 25,000
Units sold 22,000
Unit selling price $70
Explanation / Answer
Calculation of Net operarating income under absorption costing
Variable selling and administrative expenses
[22,000 units x $2 per unit]
Note 1
Cost of goods manufactured:
= Direct Material + Direct labor + Variable manufacturing Overhead + Fixed manufacturing Overhead
= [($10 + $15 + $7) x 25,000] + $100,000
= $900,000
Note 2:
Closing Inventory quantity
Closing Inventoy = Open. inventory + Inventory manufactured during the year - Inventory sold
= nil + 25,000 units - 22,000 units
= 3,000 units
Note 3
Cost of closing inventory:
Cost of manufacturig of 25,000 units = $900,000
Cost of manufacturing of 3,000 units = (3,000 units ÷ 25,000 units) x $900,000 = $108,000
Sales (22,000 units x $70) $1,540,000 Cost of Goods Sold: Beginning inventoy $0 Add: Cost of Goods manufactured - 25,000 units [Note -1] $900,000 Cost of goods avaibale for sale $900,000 Less: Closing inventoy - 3,000 units [Note -2 & 3] $108,000 $792.000 Gross profit $748,000 Less: Selling and administrative expensesVariable selling and administrative expenses
[22,000 units x $2 per unit]
$44,000 Fixed selling and administrative expenses $80,000 $124,000 Net Operating Income $624,000Related Questions
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