Question

Naples Company produced 650,000 units and sold 500,000 units. Their unit selling price is $10. Cost of goods sold is $6 per unit. Fixed selling expenses are $10,000 and variable selling and administrative expenses are $3 per unit. Compute Naple's net income under absorption costing. $4,990,000 $500,000 $1,990,000 $490,000

Answer 1

$490,000

Step-by-step explanation:

The computation of the net income under absorption costing is shown below:

Sales (500,000 units × $10) $5,000,000

Less: Cost of goods sold (500,000 units × $6) -$3,000,000

Gross profit $2,000,000

Less: variable selling and administrative expenses

(500,000 units × $3) -$1,500,000

Less: Fixed selling expenses -$10,000

Net income $490,000

Under absorption costing we considered the fixed and selling expenses