Smith Company produces and sells one product for $40 per unit. The company has no beginning inventories. Its variable ma...
Smith Company produces and sells one product for $40 per unit. The company has no
beginning inventories. Its variable manufacturing cost per unit is $18 and the variable
selling and administrative expense per unit is $4. The fixed manufacturing overhead and
fixed selling and administrative expense total $80,000 and $20,000, respectively. If
Smith Company produces 8,000 units and sells 7,500 units during the year, then its net
operating income under absorption and variable costing
Homework Answers
| Absorption costing: | ||
| Fixed manufacturing overhead per unit | 10 | =80000/8000 |
| Sales revenue | 300000 | =7500*40 |
| Less: Cost of goods sold | 210000 | =7500*(18+10) |
| Gross Margin | 90000 | |
| Less: Selling and administrative expense | 50000 | =20000+(7500*4) |
| Net operating income under absorption costing | 40000 | |
| Variable costing: | ||
| Sales revenue | 300000 | =7500*40 |
| Less: Variable Cost of goods sold | 135000 | =7500*18 |
| Manufacturing margin | 165000 | |
| Less: Variable selling and administrative expense | 30000 | =7500*4 |
| Contribution Margin | 135000 | |
| Less: Fixed manufacturing overhead | 80000 | |
| Less: Fixed Selling and administrative expense | 20000 | |
| Net operating income under variable costing | 35000 |
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