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.

Question

Business

Riley Atkins

1 May, 10:35

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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Sandra Nolan · Answer 1

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