Rhea Corporation has provided the following data for its two most recent years o

Question

Rhea Corporation has provided the following data for its two most recent years of operation: Selling price per unit $ 67 Variable manufacturing cost per unit produced: Direct materials $ 10 Direct labor $ 5 Variable manufacturing overhead $ 3 Fixed manufacturing overhead per year $ 252,000 Selling and administrative expenses: Variable selling and administrative expense per unit sold $ 4 Fixed selling and administrative expense per year $ 65,000 Year 1 Year 2 Units in beginning inventory 0 1,000 Units produced during the year 9,000 7,000 Units sold during the year 8,000 7,000 Units in ending inventory 1,000 1,000 The net operating income (loss) under absorption costing in Year 2 is closest to: a) $99,000 b) $71,000 c) $6,000 d) ($2,000)

Explanation / Answer

Sales revenue 469000 =7000*67 Cost of goods sold: Direct materials 70000 =7000*10 Direct labor 35000 =7000*5 Variable manufacturing overhead 21000 =7000*3 Fixed manufacturing overhead 244000 =(252000/9000*1000)+(252000/7000*6000) Cost of goods sold 370000 Gross Profit 99000 Selling and administrative expense 93000 =65000+(7000*4) Net operating income (loss) 6000 Option C is correct

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