Question

ProTech began business at the start of the current year. The company planned to produce 40,000 units, and actual production conformed to expectations. Sales totaled 37,000 units at $42 each. Costs incurred were:
Variable manufacturing overhead per unit
$
19
Fixed manufacturing overhead
240,000
Variable selling and administrative cost per unit
7
Fixed selling and administrative cost per unit
140,000
If there were no variances, the company's absorption-costing income would be ___________

Answer 1

Answer:

Net operating profit= $230,000

Explanation:

The absorption costing method includes all costs related to production, both fixed and variable. The unit product cost is calculated using direct material, direct labor, and total unitary manufacturing overhead.

First, we need to calculate the unitary cost:

Unitary production cost= 19 + (240,000/40,000)

Unitary production cost= $25

Now, the income statement:

Sales= 37,000*42= 1,554,000

COGS= (37,000*25)= (925,000)

Gross profit= 629,000

Total selling and administrative cost= (7*37,000) + 140,000= (399,000)

Net operating profit= $230,000