Khanam Corporation, which has only one product, has provided the following data

Question

Khanam Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price   $109
Units in beginning inventory   0
Units produced   8,550
Units sold   8,650
Units in ending inventory   550
Variable costs per unit:     
Direct materials   $23
Direct labor   $40
Variable manufacturing overhead   $4
Variable selling and administrative   $14
Fixed costs:     
Fixed manufacturing overhead   $68,400
Fixed selling and administrative   $162,400

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.

What is the net operating income for the month under absorption costing?
$10,600
$3,500
$3,500
$18,100

Explanation / Answer

Income statement as per absorpiton costing unit rate amount Sales 8650 109 942850 less: cost of goods sold openiong inventory 650 67 43550 produced inventory 8550 67 572850 total 9200 616400 less : closing inventory 550 550 67 36850 579550 gross profit 363300 less : selling & variable expense 121100 fixed expns 230800 net income 11400 variable cost rate unit amount direct material 23 8550 196650 direct labour 40 8550 342000 variable manufacutring overhead 4 8550 34200 total 572850 divide by number of unit 8550 rate per unit 67 variable selling & administative 14 8650 121100 fixed exenses fixedmanufacutring overhead 68400 fixed selling & administative 162400 total 230800

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