Question

Belmain Co. expects to maintain the same inventories at the end of 2016 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows:

	Estimated Fixed Costs	Estimated Variable Cost (per unit sold)
Production costs:
Direct materials……………………………………………………………….	--	$50.00
Direct labor……………………………………………………………………..	--	30.00
Factory overhead…………………………………………………………….	$350,000	6.00
Selling expenses:
Sales salaries and commissions……………………………………….	340,000	4.00
Advertising………………………………………………………………………	116,000	--
Travel………………………………………………………………………………	4,000	--
Miscellaneous selling expense…………………………………………	2,300	1.00
Administrative expenses:
Office and officers’ salaries……………………………………………..	325,000	--
Supplies…………………………………………………………………………..	6,000	4.00
Miscellaneous administrative expense	8,700	1.00
Total………………………………………………………………………………………………	$1,152,000	$96.00

It is expected that 12,000 units will be sold at a price of $240 a unit. Maximum sales within the relevant range are 18,000 units.

1. prepare absorption costing income statement

Answer 1

$2.880,000 Belmain Co. Absorption Costing Income Statement For the Year 2016 3 Sales Less: Cost of goods sold: Direct materials $600,000 Direct labor $360,000 Variable manufacturing overhead costs $72,000 8 Fixed manufacturing overhead costs $350.000 9 Cost of goods sold 10 Gross profit 11 Less: Selling and administrative expenses: 12 Variable selling and administrative expenses $120,000 13 Fixed selling and administrative expenses $802,000 14 Total selling and administrative expenses 15 Net operating income $1,382,000 $1,498,000 $922,000 $576,000 Calculations are shown below: A =12000*240 Belmain Co. Absorption Costing Income Statement For the Year 2016 3 Sales 4 Less: Cost of goods sold: 5 Direct materials = 12000050 6 Direct labor -1200030 7 Variable manufacturing overhead costs = 12000*6 8 Fixed manufacturing overhead costs 350000 9 Cost of goods sold 10 Gross profit 11 Less: Selling and administrative expenses: 12 Variable selling and administrative expenses =12000*(4+1+4+1) 13 Fixed selling and administrative expenses =340000+116000+4000+2300+325000+6000+8700 14 Total selling and administrative expenses 15 Net operating income ESUM(BS:B8) =C3-CO =B12-B13 =C10-C14