Farron Corporation, which has only one product, has provided the following data

Question

Farron Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $140 Units in beginning inventory 0 Units produced 9,300 Units sold 8,900 Units in ending inventory 400 Variable costs per unit: Direct materials $25 Direct labor $67 Variable manufacturing overhead $13 Variable selling and administrative $17 Fixed costs: Fixed manufacturing overhead $139,500 Fixed selling and administrative $9,500 What is the net operating income for the month under absorption costing? $30,800 $11,200 $17,200 $6,000 ©2016 McGraw-Hill Education. All rights reserved. Requires a modern browser - e.g. Safari 1, Netscape 6 or IE 5

Explanation / Answer

Answer.c. $17200 Calculation of Cost per Unit Under Absorption Costing Direct Materials                          25 Direct Labor                          67 Variable MOH                          13 Fixed MOH ($139500 / 9300 Units)                          15 Cost per Unit                        120 Calculation of Net Operating Income Under Absorption Costing Sales - 8900 Units X $140            1,246,000 Less: COGS - 8900 Units X $120         (1,068,000) Gross Margin               178,000 Less: Expenses Selling & Admn. Exp. Variable - 8900 Units X 17             (151,300) Fixed                  (9,500) Net Operating Income                  17,200

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