Calder Corporation manufactures and sells one product. The following information
ID: 2500268 • Letter: C
Question
Calder Corporation manufactures and sells one product. The following information pertains to the company's first year of operations:
Variable costs per unit: Direct Materials $92 Fixed costs per year: Direct Labor $720,000 Fixed manufacturing overhead $3,264,000 Fixed selling and administrative $1,935,000
The company does not have any variable manufacturing overhead costs or variable selling and administrative costs. During its first year of operations, the company produced 48,000 units and sold 45,000 units. The company’s only product sells for $258 per unit. Required: What is the net operating income?
Explanation / Answer
Answer:
Calculation of Net Operating Income;
Sales Revenue = $ 258 x 45,000 units = $ 11,610,000
Less: Direct Material Cost = $ 92 x 48,000 units = ($ 4,416,000)
Less: Fixed Direct Labor = ($ 720,000)
Less: Fixed Manufacturing Overheads = ($ 3,264,000)
Less: Fixed Selling and admin expenses = ($ 1,935,000)
Add: Inventory at Direct Material Cost = $ 92 x 3,000 units = $ 276,000
Net Operating Income = $ 1,551,000
Note: Alternately the Inventory of 3,000 units can be values at Cost of Production = Direct Material Cost + Proportion of Direct Labor Cost + Proportion of Manufacturing Overheads. In that case, value of invemtory shall be;
$ 92 x 3,000 = $ 276,000
Add: $ 720,000 x 3,000 / 48,000 = $ 45,000
Add: $ 3,264,000 x 3,000 / 48,000 = $ 204,000
Value of Inventory = $ 525,000 and the Net Operating Income = $ 1,551,000 - $ 276,000 + $ 525,000 = $ 1,800,000.
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