Question

Vegas Company has the following unit costs: Variable manufacturing overhead $ 40 Direct materials 35 Direct labor 34 Fixed manufacturing overhead 27 Variable marketing and administrative 22 Vegas produced and sold 13,000 units. If the product sells for $190, what is the operating profit under full absorption costing?

Answer 1

Answer:

$702,000

Explanation:

The computation of operating profit is shown below:-

Direct material = $35

Direct labor = $34

Variable manufacturing Overheads = $40

Fixed manufacturing overheads = $27

Product cost in units = Direct material + Direct labor + Variable manufacturing Overheads + Fixed manufacturing overheads

= $35 + $34 + $40 + $27

= $136

Total expenses = 13,000 × $136

= $1,768,000

Sales revenue = 13,000 × $190

= $2,470,000

So total operating profit = Total expenses - Sales revenue

= $1,768,000 - $2,470,000

= $702,000

Therefore, in this method we ignore the variable marketing and administrative cost in the question for determining the operating profit.