Question

of 4 Required information (The following information applies to the questions displayed below.) Cool Sky reports the following costing data on its product for its first year of operations. During this first year, the company produced 44,000 units and sold 36,000 units at a price of $140 per unit. Manufacturing costs Direct materials per unit Direct labor per unit Variable overhead per unit Fixed overhead for the year Selling and administrative costs Variable selling and administrative cost per unit Fixed selling and administrative cost per year $528,000 $105,000 1b. Assume the company uses absorption costing. Prepare its income statement for the year under absorption costing. COOL SKY Absorption Costing Income Statement Sales $ 5,040,000

Answer 1

Ans. 1 b	COOL SKY
	Absorption Costing Income Statement
	PARTICULARS		Amount
	Sales   (36,000 * $140)		$5,040,000
	Less: Cost of goods sold
	Opening inventory	$0
	Add: Cost of goods manufactured (44,000*$102)	$52,800
	Cost of goods available for sale	$52,800
	Less: Ending inventory [(44,000 - 36,000) * $102]	-$816,000
	Cost of goods sold (total)		-$763,200
	Gross margin		$5,803,200
	Selling & Administrative expenses:
	Fixed	$105,000
	Variable     (36,000 * $11)	$396,000
	Total Selling and administrative expenses		$501,000
	Net operating income		$5,302,200
	*Working Notes:
	In Absorption costing method, the unit product cost is the sum of all manufacturing costs per unit
	whether it is fixed or variable.
	Unit product cost under Absorption Costing:
	Direct materials	$60.00
	Direct labor	$22.00
	Variable Overhead per unit	$8.00
	Fixed overhead per unit   ($528,000 / 44,000)	$12.00
	Product Cost per unit	$102.00
	*Fixed overhead per unit = Fixed overhead / Units produced
	*Ending inventory   = (Units produced - Units sold) * Production cost per unit
	*Variable selling and administrative cost = Variable selling and administrative cost per unit * Units sold