Question

Mallory Industries has the following cost information for the year just ended:

Direct materials $6.00 per unit
Direct labor $2.00 per unit
Variable manufacturing overhead $1.50 per unit
Fixed manufacturing overhead $40,000
Variable selling and administrative cost $3.00 per unit
Fixed selling and administrative cost $50,000
During the year, Mallory produced 10,000 units, out of which 9,100 were sold for $50 each. What is net income under absorption costing?

Answer 1

To find the profit-maximizing quantity for Doggies Paradise Inc., calculate total revenue, marginal revenue, total cost, and marginal cost for output levels one to five. The profit-maximizing quantity is where the marginal cost equals the marginal revenue. Draw total revenue and total cost curves on one diagram, and marginal revenue and marginal cost curves on another to visually represent these points.

Step-by-step explanation:

To determine the profit-maximizing quantity for Doggies Paradise Inc., we first need to calculate the total revenue (TR), marginal revenue (MR), total cost (TC), and marginal cost (MC) for each output level from one to five units. In a perfectly competitive market, the marginal revenue is equal to the price, so for each additional unit sold, MR will be $72. Here's a breakdown of the calculations:

• Total Revenue (TR) = Price * Quantity
• Marginal Revenue (MR) = Change in TR / Change in Quantity
• Total Cost (TC) = Fixed Costs + Variable Costs
• Marginal Cost (MC) = Change in TC / Change in Quantity

Once the calculations are made, create the table with the calculated values, and then plot the TR and TC curves on one diagram and the MR and MC curves on another diagram. The profit-maximizing quantity is where MR = MC, and it's just before the point where MC starts to exceed MR.

Remember, when drawing the diagrams, the total cost curve should start at the fixed cost level, and both the TC and TR curves should slope upwards. Similarly, in the MR and MC diagram, identify where the two curves intersect; this point will indicate the profit-maximizing output level.

Answer 2

Results are below.

Step-by-step explanation:

The absorption costing method includes all costs related to production, both fixed and variable. The unit product cost is calculated using direct material, direct labor, and total unitary manufacturing overhead.

First, we need to calculate the unitary cost value:

Unitary cost= (6 + 2 + 1.5) + 40,000/10,000

Unitary cost= $13.5

Now, the income statement:

Sales= 9,100*50= 455,000

COGS= (13.5*9,100)= (122,850)

Gross profit= 332,150

Total administrative costs= (3*9,100) + 50,000= (77,300)

Net operating income= 254,850