Duif Company\'s absorption costing income statement for the last year of operati

Question

Duif Company's absorption costing income statement for the last year of operations is presented below. Sales..........................................................................................$70,000 Less cost of goods sold: Beginning inventory.............................................. 0 Add cost of goods manufactured..................48,000 Goods available for sale...................................48,000 Less ending inventory.......................................6,000 Cost of goods sold....................................................................42,000 Gross margin...............................................................................28,000 Less selling and admin. expenses........................................... 25,000 Net operating income................................................................$3,000 Data on units produced and sold for the year are given below. Units in beginning inventory...................................0 Units produced....................................................8,000 Units sold.............................................................7,000 Variable manufacturing costs are $4 per unit. Fixed manufacturing overhead totaled $16,000 for the year. The fixed manufacturing overhead was applied to products at a rate of $2 per unit. Variable selling and administrative expenses were $3 per unit sold.

Explanation / Answer

WORKING NOTE

Variable costing Absorption costing S.n Particulars Amount ($) Units Cost per unit($) Amount ($) Sales 70000 70000 Less Cost of Goods Sold : (a+b-c) 42000 42000 a Begning Inventory 0 0 b Add: Cost of Goods manufactured 48000 8000 9 48000 c Less Ending Inventory 6000 1000 6 6000 Gross Margin 28000 28000 Less Selling and admin Exp 25000 7000 3 21000 Net profit 3000 7000

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