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12 June, 19:27

Aces Inc., a manufacturer of tennis rackets, began operations this year. The company produced 5,300 rackets and sold 4,200. Each racket was sold at a price of $83. Fixed overhead costs are $65,190, and fixed selling and administrative costs are $64,500. The company also reports the following per unit variable costs for the year: Variable product costs $24.38Variable selling and administrative expenses $1.38 Prepare an income statement under absorption costing.

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  1. 12 June, 19:40
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    Net operating profit = $124,248

    Explanation:

    Giving the following information:

    The company produced 5,300 rackets and sold 4,200.

    Each racket was sold for $83.

    Fixed overhead costs are $65,190

    Fixed selling and administrative costs are $64,500.

    The company also reports the following per unit variable costs for the year:

    Variable product costs $24.38

    Variable selling and administrative expenses $1.38

    Under absorption costing the fixed overhead is included in the product costs.

    Unitary fixed overhead = 65190/5300 = $12.3

    Cost of goods sold = 4200 * (24.38 + 12.3) = 154,056

    Income statement:

    Sales = 4200*83 = $348,600

    COGS = 154,056

    Gross profit = 194,544

    Selling and administrative expense = 64500 + (4200*1.38) = $70296

    Net operating profit = $124,248
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