Question

Required Information The following information applies to the questions displayed below) Oak Mart, a producer of solid oak tables, reports the following data from its second year of business 320 per Sales price per unit Units produced this year Units sold this year Units in beginning-year inventory Beginning inventory costs Variable (3,750 units X $135) Fixed (3,750 units $75) Total Manufacturing costs this year Direct materials $ unit 120,000 units 123,750 units 3,750 units $ 506,250 281,250 $ 787,500 $ 46 Per unit $ 62 per unit Direct labor Overhead costs this year Variable overhead Fixed overhead Selling and administrative costs this year Variable Fixed $3,200,000 $7,200,000 $1,400,000 4,400,000 2. Prepare the current year income statement for the company using absorption costing $ 39,600,000 OAK MART COMPANY Absorption Costing Income Statement Sales Plus: Variable costs Beginning inventory $ 1.200.000 Manufacturing costs this year Variable overhead costs 506,250 Direct labor 7,440.000 Direct materials 5,520,000 Less: Ending Inventory 0 Fixed overhead costs 7,200.000 21,866,250 Cost of goods sold Gross margin Selling general and administrative expenses Fixed selling and administrative costs Variable selling and administrative expenses $ 4,400,000 1.400.000 Total Selling general and administrative expenses Net Income (loss 5 800,000 S 9.933.750 Net Income under variable costing is higher than net income under absorption costing by Number of units added to subtracted from Inventory Fixed costs added to subtracted from Inventory

Answer 1

2
OAK MART COMPANY
Absorption Costing Income Statement
Sales		39600000	=123750*320
Less: Cost of goods sold
Beginning inventory	787500
Manufacturing costs this year:
Direct materials	5520000		=120000*46
Direct labor	7440000		=120000*62
Variable overhead costs	3200000
Fixed overhead costs	7200000
Less: Ending inventory	0
Cost of goods sold		24147500
Gross margin		15452500
Selling general and administrative expenses
Fixed selling and administrative costs	4400000
Variable selling and administrative expenses	1400000
Total Selling general and administrative expenses		5800000
Net income (loss)		9652500
Net income under variable costing is higher than net income under absorption costing by:		281,250
Number of units added to (subtracted from) inventory		3,750
Fixed overhead cost per unit		75
Fixed costs added to (subtracted from) inventory		281250