1. a. The unit product cost under absorption costing is:
Direct materials ... $20
Direct labor ... 8
Variable manufacturing overhead... 2
Fixed manufacturing overhead ($100,000 ÷ 10,000 units) .... 10
Unit product cost ... $40
b. The absorption costing income statement is:
Sales (8,000 units × $75 per unit)... $600,000
Less cost of goods sold:
Beginning inventory... $ 0
Add cost of goods manufactured
(10,000 units × $40 per unit) ... 400,000
Goods available for sale ... 400,000
Less ending inventory
(2,000 units × $40 per unit) ... 80,000 320,000
Gross margin... 280,000
Less selling and administrative expenses
[(8,000 units × $6 per unit) + $200,000]... 248,000
Net operating income... $ 32,000
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