Asked by Megan Quinn on May 10, 2024
Verified
Income for year 1 using absorption costing is:
A) $76,000.
B) $82,400.
C) $88,800.
D) $106,600.
E) $111,000.
Absorption Costing
A product costing approach that incorporates all costs of manufacturing, including both fixed and variable, into the product's price.
- Investigate the contrasts and comparisons in profit calculation when employing absorption and variable costing, acknowledging how it affects the financial statements and decision-making process.
Verified Answer
SL
Stephanie LuceroMay 16, 2024
Final Answer :
B
Explanation :
To calculate income under absorption costing, we need to first calculate the cost of goods sold.
Year 1:
Beginning inventory: 0
+ Cost of goods manufactured: $570,000
= Goods available for sale: $570,000
- Ending inventory: $400,000
= Cost of goods sold: $170,000
Next, we need to calculate the manufacturing overhead applied to the units produced:
Actual manufacturing overhead: $120,000
+ Budgeted manufacturing overhead for 960,000 DLH: $144,000
= Total manufacturing overhead: $264,000
/ Units produced: 48,000
= Manufacturing overhead per unit: $5.50
Now we can calculate the cost per unit:
Direct materials: $8
Direct labor: $12
Manufacturing overhead: $5.50
= Total cost per unit: $25.50
Finally, we can calculate the income using absorption costing:
Sales: $300,000
- Cost of goods sold: $170,000
= Gross profit: $130,000
- Selling and administrative expenses: $48,600
- Manufacturing overhead not applied to units sold: $39,600 (48,000 units x $0.825 per unit)
= Income under absorption costing: $82,400
Year 1:
Beginning inventory: 0
+ Cost of goods manufactured: $570,000
= Goods available for sale: $570,000
- Ending inventory: $400,000
= Cost of goods sold: $170,000
Next, we need to calculate the manufacturing overhead applied to the units produced:
Actual manufacturing overhead: $120,000
+ Budgeted manufacturing overhead for 960,000 DLH: $144,000
= Total manufacturing overhead: $264,000
/ Units produced: 48,000
= Manufacturing overhead per unit: $5.50
Now we can calculate the cost per unit:
Direct materials: $8
Direct labor: $12
Manufacturing overhead: $5.50
= Total cost per unit: $25.50
Finally, we can calculate the income using absorption costing:
Sales: $300,000
- Cost of goods sold: $170,000
= Gross profit: $130,000
- Selling and administrative expenses: $48,600
- Manufacturing overhead not applied to units sold: $39,600 (48,000 units x $0.825 per unit)
= Income under absorption costing: $82,400
Learning Objectives
- Investigate the contrasts and comparisons in profit calculation when employing absorption and variable costing, acknowledging how it affects the financial statements and decision-making process.
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