Question

Petra, Inc. has collected the following data.​ (There are no beginning​ inventories.): Units produced 580 units Units sold 580 units Sales price $ 230 per unit Direct materials $ 30 per unit Direct labor $ 35 per unit Variable manufacturing overhead $ 10 per unit Fixed manufacturing overhead $ 23 comma 000 per year Variable selling and administrative costs $ 15 per unit Fixed selling and administrative costs $ 10 comma 000 per year What is the operating income using absorption​ costing? (Round any intermediate calculations to the nearest cent and your final answer to the nearest​ dollar.)

Answer 1

Answer:

Operating income is $28,197.2

Explanation:

In order to calculate operating income, first we have to calculate total product cost per unit which is calculated as shown below:

Direct material per unit = $30

Direct labor = $35

Variable manufacturing overhead per unit = $10

Fixed manufacturing overhead per unit = 23,000 ÷ 580 = $39.66 per unit

Product cost per unit = 30 + 35 + 10 + 39.66 = $114.66

Now compute operating income as shown below:

Total sales = Per unit sales price × Units sold

                  = $230 × 580

                  = $133,400

Cost of goods sold = Units produced × product cost per unit

                                = 580 × 114.66

                                = $66,502.8

Gross profit = Sales - COGS

                    = 113,400 - 66,502.8

                    = $46,897.2

Fixed selling and administrative cost = $10,000

Variable selling and administrative cost = 15 × 580 = $8,700

Total selling and administrative cost = 10,000 + 8,700 = $18,700

Operating income = Gross profit - total selling and administrative cost

                               = $46,897.2 - 18,700

                               = $28,197.20