Question

Company incurred the following costs while producing 400 ​units: direct​ materials, $ 6 per​ unit; direct​ labor, $ 27 per​ unit; variable manufacturing​ overhead, $ 19 per​ unit; total fixed manufacturing overhead​ costs, $ 4 comma 000​; variable selling and administrative​ costs, $ 10 per​ unit; total fixed selling and administrative​ costs, $ 3 comma 200. There are no beginning inventories. What is the operating income using absorption costing if 400 units are sold for $ 180 ​each?

Answer 1

$40,000

Step-by-step explanation:

The operating income using absorption costing is find out by using the following equation

Sales revenue $72,000 (400 units × $180)

Less:

Direct material cost $2,400 (400 units × $6)

Direct labor cost $10,800 (400 units × $27)

Variable manufacturing overhead $7,600 (400 units × $19)

Fixed manufacturing overhead $4,000

Variable selling and admin cost $4,000 (400 units × $10)

Fixed selling and admin cost $3,200

Operating income using absorption costing $40,000

We simply subtract all expenses from the sales so that the operating income under absorption costing could arrive