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30 January, 16:30

Protect Me Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $ 121 Units in beginning inventory 800 Units produced 8,700 Units sold 8,800 Units in ending inventory 700 Variable costs per unit: Direct materials $ 26 Direct labor $ 43 Variable manufacturing overhead $ 7 Variable selling and administrative expense $ 17 Fixed costs: Fixed manufacturing overhead $ 69,600 Fixed selling and administrative expense $ 168,300 The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. What is the net operating income for the month under absorption costing? a. $7,700 b. $3,800 c. $10,800 d. $12,700

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  1. 30 January, 17:33
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    a. $7,700

    Explanation:

    Protect Me Corporation

    Income Statement (Absorption Costing)

    For the recent month ending

    Sales (8,800 x $121) $1,064,800

    Less: Cost of Goods Sold (8,800 units x * $84) - $739,200

    Gross Margin $325,600

    Less: Sales and Administrative Expenses

    Variable selling and administrative expense (8,800 units x $17) - $149,600

    Fixed selling and administrative expense - $168,300

    Net Income $7,700

    *Cost per unit under Absorption Costing can be calculated as follows;

    Product Cost = Direct Material + Direct Labor + Variable manufacturing overhead + Fixed manufacturing overhead

    Product Cost = $226,200 + $374,100 + $60,900 + $69,600

    Product Cost = $730,800 $738,400

    Cost per unit = Product Cost / Units Produced

    Cost per unit = $730,800 / 8,700 units

    Cost per unit = $84 per unit
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