Question

Colbert Company has the following information about its only product:

Revenue $200,000

Direct materials used $9,000

Direct labor 17,000

Variable factory overhead 13,000

Fixed factory overhead 8,000

Variable selling and administrative expenses 22,000

Fixed selling and administrative expenses 11,000

Required:

Colbert Company uses absorption approach. Calculate the operating income.

calculate the operating income using contribution and absorption methods for each problem

Answer 1

Absorption Costing Income Statement $ Sales 200,000.00 Less Cost of goods sold Direct Material 9,000.00 $ 17,000.00 13,000.00 Direct Labour Variable overhead costs Fixed overhead costs 8,000.00 $ Cost of goods sold 47,000.00 Gross Margin 153,000.00 Selling and admin Expenses Fixed selling and admin expense Variable selling and admin expense 11,000.00 $ $ 22,000.00 Total Selling and admin Expenses Net income /(loss) 33,000.00 120,000.00

Contribution method Income Statement $ Sales 200,000.00 Less Variable costs Direct Material 9,000.00 $ Direct Labour 17,000.00 13,000.00 22,000.00 Variable overhead costs Variable selling and admin expense Total Variable costs $ 61,000.00 Contribution Margin Less : Fixed expense Fixed selling and admin expense 139,000.00 $ 11,000.00 $ Fixed overhead costs 8,000.00 Total Fixed expense Net income /(loss) 19,000.00 120,000.00

If the Production units equal sales units and there is no beginning Finished goods inventory Then Income reported will be identical under both absorption costing method and contribution method