Question

Loring Company had the following data for the month:

Variable costs per unit:

Direct Materials $4

Direct Labor 3.20

Variable Overhead 1

Variable selling expense 0.40



Fixed Overhead is $4,000 per month; it is applied to production based on normal activity of 2,000 units. During the month, 2,000 units were produced. Loring started the month with 300 units in beginning inventory, with unit product cost equal to this months unit product cost. A total of 2100 units were sold during the moth at price of $14. Selling & Administrative expense for the month, all fixed totaled $3,600.



1. What is operating income under variable costing?

2. What is the unit product cost under absorption costing?

3.What is operating income under absorption costing?

Answer 1

1) Loring Company

Income Statement ---- Direct Costing

Sales ( 2100 @ $1 4) $ 29,400

Direct Materials (2000 @ $4) $ 8000

Direct Labor ( 2000 @ 3.2) $ 6400

Variable FOH (1@ 2000) $2000

Variable Cost of Goods Manufactured $ 16 400

Beginning Inventory (300 units @ 8.2) $ 2460

Variable Cost of Goods Available for Sale $ 18860

Ending Inventory (200 units @8.2) $ 1640

Variable Cost Of Goods Sold $ 17220

Gross Contribution Margin $ 12180

Variable Selling Expense (2100 @ 1) $ 2100

Contribution Margin $ 10080

Less Fixed Expenses

Fixed OH $ 4000

Fixed Selling & Administrative Expenses $ 3600

Gross Profit $ 2480

Marketing & Administrative Expenses $ 3600

Operating Income for the month $ 4380

2. Unit Product Under Absorption Costing

Direct Materials (2000 @ $4) $ 8000

Direct Labor ( 2000 @ 3.2) $ 6400

Variable FOH (1@ 2000) $2000

Fixed OH $ 4000

Cost Of Goods Manufactured $ 20,400

Unit Cost = $ 20,400/ 2000= $ 10.2

Unit Cost = $ 20,400/ 2000= $ 10.2

Add Beginning Inventory (300 units @ 10.2) $ 3060

Less Ending Inventory (200 units @10.2)= $2040

Cost of Goods Sold $ 21, 420

Unit Cost = $ 21420/2100= $ 10.2

3. Loring Company

Income Statement ------ Absorption Costing

Sales ( 2100 @ $1 4) $ 29,400

Direct Materials (2000 @ $4) $ 8000

Direct Labor ( 2000 @ 3.2) $ 6400

Variable FOH (1@ 2000) $2000

Fixed OH $ 4000

Cost Of Goods Manufactured $ 20,400

Unit Cost = $ 20,400/ 2000= $ 10.2

Add Beginning Inventory (300 units @ 10.2) $ 3060

Less Ending Inventory (200 units @10.2)= $2040

Cost of Goods Sold $ 21, 420

Gross Profit $ 7980

Marketing & Administrative Expenses $ 3600

Operating Income for the month $ 4380