During its first year of operation Salon Manufacturing Company sold 1,200 units of inventory. Salon incurred variable product cost of $6.50 per unit and $2,500 of fixed manufacturing overhead costs. The sales price of the products was $10.00 per unit. Salon uses absorption costing. Based on this information Salon will report net income of (Do not round intermediate calculations.)

Question

Derek Brennan

Business

17 May, 08:01

During its first year of operation Salon Manufacturing Company sold 1,200 units of inventory. Salon incurred variable product cost of $6.50 per unit and $2,500 of fixed manufacturing overhead costs. The sales price of the products was $10.00 per unit. Salon uses absorption costing. Based on this information Salon will report net income of (Do not round intermediate calculations.)

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Judah Richardson · Answer 1

Net Income under absorption costing = $1,700

Explanation:

Absorption costing is a method of costing where production units and inventories are value at the full cost per unit. Here, fixed overheads are charged to all units produced using an overhead absorption rate

The full cost per unit = D. mat cost + D. labour cost + Variable overheads + Fixed overheads

Overhead absorption rate = Overhead for the period/

Net Income = (1200 * $10) - (1200 * $6.50) - 2,500

= $1,700

Net Income under absorption costing = $1,700