Question

Advanced Company reports the following information for the current year. All beginning inventory amounts equaled $0 this year.

Units produced this year 35,000 units
Units sold this year 21,000 units
Direct materials $19 per unit
Direct labor $21 per unit
Variable overhead $3 per unit
Fixed overhead $175,000 in total

Given Advanced Company's data, and the knowledge that the product is sold for $71 per unit and operating expenses are $300,000. Compute the net income under absorption costing.

Answer 1

$183,000

Step-by-step explanation:

Advanced Company

Income Statement for the year - absorption costing

Sales ($71 x 21,000 units) $1,491,000

Less Cost of Sales ($1,008,000)

Gross Profit $483,000

Less Expenses

Operating expenses ($300,000)

Net Income $183,000

where,

Cost of Sales = Units Sold x Product Cost

= 21,000 x $48

= $1,008,000

Product Cost = all manufacturing costs (absorption costing)

= $19 + $21 + $3 + ($175,000 ÷ 35,000)

= $48