Advanced Company reports the following information for the current year. All beg

Question

Advanced Company reports the following information for the current year. All beginning inventory amounts equaled $0 this year.

Units Produced this year 25,000 units

Units sold this year 15,000 units

direct materials $9 per unit

Direct Labor $11 per unit

Variable Overhead $75,000 in total

Fixed Overhead $137,500 in total

Given Advanced Company's data, and the knowledge that the product is sold for $50 per unit and operating expenses are $200,000, compute the net income under absorption costing. $205,000, $122,500, $80,500, $55,000, $67,500

Front Company had net income of $72,500 based on variable costing. Beginning and ending inventories were 800 units and 1,200 units, respectively. Assume the fixed overhead per unit was $7.90 for both the beginning and ending inventory. What is net income under absorption costing?

$72,900

$88,300 $56,700 $69,340 $75,660

$72,900

Explanation / Answer

Hi,

Please find the answers as follows:

Part A:

Net Income is 122500

Part B:

Net Income under Absorbtion Costing = 72500 - (800 + 1200)*7.9 = 56700

Thanks.

Amount Sales 750000 Variable Manufacturing Costs
Direct Material 225000 Direct Labor 275000 Variable Overheads 75000 Fixed Overheads 137500 Cost of Goods Manufactured 712500 Less Closing Inventory = 712500/25000*10000 285000 Cost of Goods Sold 427500 Gross Profit (Sales - COGS) 322500 Operating Expenses 200000 Net Income (Gross Profit - Operating Expenses) 122500

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