Question

Aces Inc., a manufacturer of tennis rackets, began operations this year. The company produced 5,300 rackets and sold 4,200. Each racket was sold at a price of $83. Fixed overhead costs are $65,190, and fixed selling and administrative costs are $64,500. The company also reports the following per unit variable costs for the year: Variable product costs $24.38Variable selling and administrative expenses $1.38 Prepare an income statement under absorption costing.

Answer 1

To calculate total revenue, marginal revenue, total cost, and marginal cost, use the given information. The profit-maximizing quantity of output is three units.

Step-by-step explanation:

To calculate the total revenue, multiply the selling price by the quantity sold. For example, when one unit is sold, the total revenue is $20. The marginal revenue is the change in total revenue when one additional unit is sold. For example, when two units are sold, the marginal revenue is $5. To calculate the total cost, add the fixed costs to the variable costs. For example, when one unit is produced, the total cost is $40. The marginal cost is the change in total cost when one additional unit is produced. For example, when two units are produced, the marginal cost is $15.

The profit-maximizing quantity of output is the level of production where marginal revenue equals marginal cost. In this case, when three units are produced, the marginal revenue is $10 and the marginal cost is $10. Therefore, the profit-maximizing quantity of output is three units.

Answer 2

Net operating profit= $124,248

Step-by-step explanation:

Giving the following information:

The company produced 5,300 rackets and sold 4,200.

Each racket was sold for $83.

Fixed overhead costs are $65,190

Fixed selling and administrative costs are $64,500.

The company also reports the following per unit variable costs for the year:

Variable product costs $24.38

Variable selling and administrative expenses $1.38

Under absorption costing the fixed overhead is included in the product costs.

Unitary fixed overhead= 65190/5300= $12.3

Cost of goods sold= 4200*(24.38 + 12.3)= 154,056

Income statement:

Sales= 4200*83= $348,600

COGS= 154,056

Gross profit= 194,544

Selling and administrative expense= 64500 + (4200*1.38)= $70296

Net operating profit= $124,248