Question

Brush Industries reports the following information for May: Sales $ 900,000 Fixed cost of goods sold 100,000 Variable cost of goods sold 250,000 Fixed selling and administrative costs 100,000 Variable selling and administrative costs 125,000 Calculate the operating income for May under absorption costing.

Answer 1

Answer:

The operating income for May under absorption costing is $325,000

Explanation:

For computing the operating income under absorption costing, the calculation is shown below

Sales - Cost of good sold = Gross Profit

Gross Profit - Selling & Admin Expenses = Net income

By following these two equations we can easily compute net income

First we compute the gross profit

where,

Sales is $900,000

And cost of good sold = Fixed cost of goods sold + Variable cost of goods sold  

So, cost of good sold = $100,000 + $250,000 = $350,000

Thus, the Gross profit is $900,000 - $350,000  = $550,000

Now, after computing the gross profit, the selling and admin expenses of variable and fixed should be deducted from gross profit

So,

= $550,000 - $100,000 - $125,000

= $325,000

Hence, the operating income for May under absorption costing is $325,000