Last year, Richmon Company produced 10,000 units and sold 6,000 units at a price of $20....
Last year, Richmon Company produced 10,000 units and sold 6,000 units at a price of $20. Costs for last year were as follows:
Direct materials $30,000
Direct labor 38,000
Variable factory overhead 8,000
Fixed factory overhead 40,000
Variable selling expense 5,000
Fixed selling expense 4,900
Fixed administrative expense 11,000
Fixed factory overhead is applied based on expected production. Last year, Richmon expected to produce 10,000 units. What is operating income for last year under absorption costing?
a. $55,000 b. $39,000 c. $29,500 d. $12,430 e. $63,100
Homework Answers
Solution:
Applied Fixed factory Overhead = $40,000* units sold / expected Production = $40,000*6000/10000 = $24,000
| Computation of Operating Income Under Absorption Costing | ||
| Sales Revenue (6000*$20) | $1,20,000 | |
| Less: Cost of Goods sold | ||
| Direct Material ($30000*6000/10000) | $18,000 | |
| Direct Labor (38000*6000/10000) | $22,800 | |
| Variable Factory Overhead (8000*6000/10000) | $4,800 | |
| Applied Fixed Factory Overhead ($40000*6000/10000) | $24,000 | $69,600 |
| Gross Profit | $50,400 | |
| Less: Variable selling Expense | $5,000 | |
| Less: Fixed selling expense | $4,900 | |
| Less: Fixed Administrative Expense | $11,000 | |
| Operating Income | $29,500 | |
Hence option "c" is correct.
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