Question

Oak Mart, a producer of solid oak tables, reports the following data from its second year of business. $ 300 per unit 110,000 units 113,500 units 3,500 units $ 455,000 262,500 $ 717,500 Sales price per unit Units produced this year Units sold this year Units in beginning-year inventory Beginning inventory costs Variable (3,500 units X $130) Fixed (3,500 units X $75) Total Manufacturing costs this year Direct materials Direct labor Overhead costs this year Variable overhead Fixed overhead Selling and administrative costs this year Variable Fixed 40 per unit 64 per unit $ $3,200,000 $7,600,000 $1,450,000 4,600,000 2. Prepare the current-year income statement for the company using absorption costing.

Answer 1

2
OAK MART COMPANY
Absorption Costing Income Statement
Sales		34050000	=113500*300
Less: Cost of goods sold
Beginning inventory	717500
Manufacturing costs this year:
Direct materials	4400000		=110000*40
Direct labor	7040000		=110000*64
Variable overhead costs	3200000
Fixed overhead costs	7600000
Less: Ending inventory	0
Cost of goods sold		22957500
Gross margin		11092500
Selling general and administrative expenses
Fixed selling and administrative costs	4600000
Variable selling and administrative expenses	1450000
Total fixed expenses		6050000
Net income (loss)		5042500
Net income under variable costing is higher than net income under absorption costing by:		262,500
Number of units added to (subtracted from) inventory		3,500
Fixed overhead cost per unit		75
Fixed costs added to (subtracted from) inventory		262500