Question

Protect Me Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $ 121 Units in beginning inventory 800 Units produced 8,700 Units sold 8,800 Units in ending inventory 700 Variable costs per unit: Direct materials $ 26 Direct labor $ 43 Variable manufacturing overhead $ 7 Variable selling and administrative expense $ 17 Fixed costs: Fixed manufacturing overhead $ 69,600 Fixed selling and administrative expense $ 168,300 The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. What is the net operating income for the month under absorption costing? a. $7,700 b. $3,800 c. $10,800 d. $12,700

Answer 1

a. $7,700

Step-by-step explanation:

Protect Me Corporation

Income Statement (Absorption Costing)

For the recent month ending

Sales (8,800 x $121) $1,064,800

Less: Cost of Goods Sold (8,800 units x *$84) -$739,200

Gross Margin $325,600

Less: Sales and Administrative Expenses

Variable selling and administrative expense (8,800 units x $17) -$149,600

Fixed selling and administrative expense -$168,300

Net Income $7,700

*Cost per unit under Absorption Costing can be calculated as follows;

Product Cost = Direct Material + Direct Labor + Variable manufacturing overhead + Fixed manufacturing overhead

Product Cost = $226,200 + $374,100 + $60,900 + $69,600

Product Cost = $730,800 $738,400

Cost per unit = Product Cost / Units Produced

Cost per unit = $730,800 / 8,700 units

Cost per unit = $84 per unit