Question

using absorption costing, what is operating income for last year? (round any intermediary calculations to the nearest whole dollar.)

Answer 1

The operating income (accounting profit) using absorption costing for the firm is calculated by subtracting the explicit costs of labor, capital, and materials from the sales revenue, which results in an operating income of $50,000.

Step-by-step explanation:

To calculate the operating income using absorption costing for the firm detailed in the provided information, we need to subtract the explicit costs from the sales revenue. The explicit costs include costs spent on labor, capital, and materials, which total to $600,000 for labor, $150,000 for capital, and $200,000 for materials. The accounting profit is calculated as the total revenues minus these explicit costs.

Calculation of Accounting Profit:

Sales Revenue: $1 million

Total Explicit Costs: $600,000 (Labor) + $150,000 (Capital) + $200,000 (Materials) = $950,000

Operating Income (Accounting Profit): Sales Revenue - Total Explicit Costs = $1,000,000 - $950,000 = $50,000

Answer 2

The operating income using absorption costing for last year is $188,000. Thus, the correct answer is option C. $188,000.

Step-by-step explanation:

Absorption costing allocates both variable and fixed manufacturing costs to each unit produced. To calculate operating income, we need to consider the total revenue and subtract the total cost of goods sold (COGS). The COGS is comprised of both variable and fixed manufacturing costs.

The total variable manufacturing cost per unit is the sum of the variable manufacturing costs and variable selling/administrative expenses per unit, which is ($61 + $6) = $67. Multiplying this by the units sold (1,000 units) gives the total variable costs of $67,000.

The fixed manufacturing overhead is a total cost that needs to be allocated to each unit. Dividing the total fixed manufacturing overhead by the units produced (1,500 units) gives a fixed manufacturing overhead per unit of $21.33 (rounded to the nearest cent). Multiplying this by the units sold gives the total fixed manufacturing overhead of $21,330.

Adding the total variable costs and total fixed manufacturing overhead to the total fixed selling/administrative expenses ($8,000) gives the total COGS.

Subtracting this from the total revenue (selling price per unit * units sold) gives the operating income:

($120 * 1,000) - ($67,000 + $21,330 + $8,000) = $188,000.

Therefore, the operating income using absorption costing for last year is $188,000. Therefore, the correct answer is option C. $188,000.

Full Question:

Hyper Color Company manufactures widgets. The following data is related to sales and production of the widgets for last year.

Selling price per unit $120

Variable manufacturing costs per unit $61

Variable selling and administrative expenses per unit $6

Fixed manufacturing overhead (in total) $32,000

Fixed selling and administrative expenses (in total) $8,000

Units produced during the year 1,500

Units sold during year 1,000

Using absorption costing, what is operating income for last year? (Round any intermediary calculations to the nearest whole dollar.)

A. $200,000

B. $120,000

C. $188,000

D. $24,000