Answer:
Net operating income= 374,500
Explanation:
Giving the following information:
Direct materials= $5
Direct labor= $3 per unit
Variable overhead= $4 per unit
Fixed overhead= $189,000.
The company produced 21,000 units, and sold 15,500 units
Under the absorption costing method, the unitary product cost is calculated using the direct material, direct labor, and total unitary overhead.
First, we need to calculate the unitary fixed overhead:
Unitary fixed overhead= 189,000/21,000= $9
Now, we can calculate the unitary product cost
unitary product cost= 5+3+4+9= $21
We need to determine the sales, therefore, we will reverse engineer the variable costing income statement:
Net operating income= 325,000
Fixed costs= 189,000
Variable costs= (5+3+4)*15,500= 186,000
=total sales= $700,000
Finally, we determine the net operating income under absorption costing:
Sales= 700,000
Cost of goods sold= (21*15,500)= (325,500)
Net operating income= 374,500
Answer:
$374,500
Explanation:
Variable costing consider all variable costs as production cost and Absorption costing consider all the cost incurred in production either variable or fixed as production cost.
Cost of Product
Direct materials, $5 per unit
Direct labor, $3 per unit
Variable overhead, $4 per unit
Fixed overhead per unit $9 per unit
Total Product cost $21 per unit
Variable cost per unit
Direct materials, $5 per unit
Direct labor, $3 per unit
Variable overhead, $4 per unit
Total Product cost $12 per unit
Variable costing
Net Income = Sales - variable - Fixed Costs
$325,000 = Sales - (15,500 x $12 ) - $189,000
$325,000 = Sales - $186,000 - $189,000
$325,000 = Sales - $375,000
Sales = $325,000 + $375,000
Sales = $700,000
Fixed overhead per unit = $189,000 / 21,000 = $9 per unit
Under absorption costing
Sales = $700,000
Cost of Sales = (15,500 x $21 ) = $325,500
Net Income = $700,000 - $325,500 = $374,500
