Question

Favaz began business at the start of this year and had the following costs: variable manufacturing cost per unit, $7; fixed manufacturing costs, $60,000; variable selling and administrative costs per unit, $3; and fixed selling and administrative costs, $263,000. The company sells its units for $48 each. Additional data follow. Planned production in units 10,000 Actual production in units 10,000 Number of units sold 9,500 There were no variances. The income (loss) under absorption costing is

Answer 1

Answer:

Favaz

The income (loss) under absorption costing is

= $41,000.

Explanation:

a) Data and Calculations:

Variable manufacturing cost per unit, $7

Fixed manufacturing costs, $60,000

Variable selling and administrative costs per unit, $3

Fixed selling and administrative costs, $263,000

Selling price per unit = $48

Planned production in units = 10,000

Actual production in units = 10,000

Number of units sold = 9,500

Ending inventory = 500 (10,000 - 9,500)

Income Statement

Sales revenue ($48 * 9,500)            $456,000

Cost of production:

Variable manufacturing        $70,000 ($7 * 10,000)

Fixed manufacturing costs,   60,000

Total cost of production     $130,000

Less Ending inventory             6,500 ($13 * 500)

Cost of goods sold                              123,500

Gross profit                                       $332,500

Expenses:

Variable selling and administrative

costs per unit, ($3 * 9,500)  $28,500

Fixed selling and

administrative costs,            263,000

Total expenses                                 $291,500

Net income                                          $41,000