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3 April, 11:40

Company has 130 units in Finished Goods Inventory at the beginning of the accounting period. During the accounting period, Hacken produced 190 units and sold 320 units for $ 250 each. All units incurred $ 55 in variable manufacturing costs and $ 30 in fixed manufacturing costs. Hacken also incurred $ 7 comma 700 in Selling and Administrative Costs, all fixed. Calculate the operating income for the year using absorption costing and variable costing.

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  1. 3 April, 12:09
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    The operating income for the year using absorption costing and variable costing is $45,100 and $49,000 respectively

    Explanation:

    The computation of the operating income for the year using absorption costing and variable costing is shown below:

    Absorption costing:

    Sales (320 units * $250) $80,000

    Less: Total manufacturing cost (320 units * $85) ($27,200)

    Contribution margin $52,800

    Less: Selling and Administrative Costs ($7,700)

    Net income $45,100

    Variable costing:

    Sales (320 units * $250) $80,000

    Less: Variable cost (320 units * $55) ($17,600)

    Contribution margin $62,400

    Less: Fixed manufacturing costs (190 units * $30) $5,700

    Less: Selling and Administrative Costs ($7,700)

    Net income $49,000
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