Question

Donovan Company incurred the following costs while producing 500 units: Direct Materials, $10 per unit; Direct Labor, $25 per unit; variable manufacturing overhead, $15 per unit; total fixed manufacturing overhead, $10,000; variable selling and administrative costs, $5 per units; total fixed selling and administrative costs, $7,500, There are no beginning inventories. What is the operating income using absorption costing if 500 units are sold for $100

Answer 1

Net operating income= 15,000

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.

In this case, there is no beginning nor ending inventory. Fixed overhead is incorporated into the cost of goods sold in full.

Sales= 500*100= 50,000

COGS= (10 + 25 + 15)*500 + 10,000= (35,000)

Gross profit= 25,000

Total selling and administrative costs= (5*500) + 7,500= (10,000)

Net operating income= 15,000