Question

The Harold Corporation just started business in January of 2010. They had no beginning inventories. During 2010 they manufactured 12,000 units of product, and sold 10,000 units. The selling price of each unit was $20. Variable manufacturing costs were $4 per unit, and variable selling and administrative costs were $2 per unit. Fixed manufacturing costs were $24,000 and fixed selling and administrative costs were $6,000. What would be the Harold Corporations Net income for 2010 using direct costing?

Answer 1

Answer:

Net income for 2010 using direct costing is $114,000.

Explanation:

The selling price is $20.

10,000 units of product were sold.

The sales revenue

= $10,000\ \times\ \ 20$

= $200,000

Total variable manufacturing cost

= $Variable\ manufacturing\ cost\ per\ unit\ \times\ number\ of\ units\ produced$

= $12,000\ \times\ \ 4$

= $48,000

Fixed manufacturing costs are $24,000.

Total variable administrative cost

= $Variable\ administrative\ cost\ per\ unit\ \times\ number\ of\ units\ produced$

= $10,000\ \times\ \ 2$

= $20,000

Fixed selling and administrative costs are $6,000.

Ending stock

= $\frac{Total\ manufacturing\ cost\ \times\ Inventory}{Total\ units\ produced}$

= $\frac{(48,000\ +\ 24,000 )\ \times\ 2,000}{12,000}$

= $\frac{144,000,000}{12,000}$

= $12,000

Net income

= Total revenue - (Manufacturing  costs - ending stock) - Administrative costs

= $200,000 - ($48,000 + $24,000) - $12,000) - ($20,000 + $6,000)

= $200,000 - $60,000 - $26,000

= $114,000