3. a. Sales (32,000 units × $40 per unit)... $1,280,000
Less variable expenses:
Variable cost of goods sold
(32,000 units × $16.50 per unit)... $528,000
Variable selling and administrative ex-
penses (32,000 units × $6 per unit) ... 192,000 720,000
Contribution margin ... 560,000
Less fixed expenses:
Fixed manufacturing overhead... 300,000
Fixed selling and administrative expense ... 200,000 500,000
Net operating income... $ 60,000
b. The absorption costing unit product cost will remain at $26.50, the
same as in part (1).
Sales (32,000 units × $40 per unit)... $1,280,000
Less cost of goods sold:
Beginning inventory
(2,000 units × $26.50 per unit)... $ 53,000
Add cost of goods manufactured
(30,000 units × $26.50 per unit)... 795,000
Goods available for sale ... 848,000
Less ending inventory ... 0 848,000
Gross margin... 432,000
Less selling and administrative expenses*.... 392,000
Net operating income... $ 40,000
*$192,000 variable + $200,000 fixed = $392,000.
c. Variable costing net operating income ... $ 60,000
Deduct: fixed manufacturing overhead cost
released from inventory under absorption
costing (2,000 units × $10 per unit) ... (20,000)
Absorption costing net operating income ... $ 40,000
© The McGraw-Hill Companies, Inc., 2006. All rights reserved.
Solutions Manual, Chapter 7 369
Problem 7-13 (45 minutes)
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