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14 October, 22:37

Favaz began business at the start of this year and had the following costs: variable manufacturing cost per unit, $9; fixed manufacturing costs, $60,000; variable selling and administrative costs per unit, $2; and fixed selling and administrative costs, $220,000. The company sells its units for $45 each.

Additional data follow.

Planned production in units 10,000

Actual production in units 10,000

Number of units sold 8,500

There were no variances.

The income (loss) under absorption costing is:

A. None of the answers is correct.

B. $15,000.

C. $ (7,500).

D. $18,000.

E. $9,000.

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Answers (1)
  1. 14 October, 23:04
    0
    The income (loss) under absorption costing is $7,500, which is mentioned in option C for the Favaz began business.

    Explanation:

    The given is,

    Variable manufacturing cost per unit - $9

    Fixed manufacturing costs - $60,000

    Variable selling and administrative costs per unit - $2

    Fixed selling and administrative costs - $220,000

    Sells its units for $45 each

    Planned and actual production in units 10,000

    Number of units sold 8,500

    Step:1

    Total variable cost = No. of units * Variable cost per unit

    = 10,000 * 9

    = $90,000

    Total variable selling and administrative cost,

    = No. of units * Variable selling and administrative cost per unit

    = 10,000 * 2

    = $20,000

    Total cost = Total variable cost + Fixed cost + Total variable selling

    and administrative cost + Fixed selling and

    administrative costs + Fixed manufacturing costs

    = 90,000 + 20,000 + 220,000 + 60,000

    = 390,000

    Total cost = $390,000

    Step:2

    Total sales cost = No. of units to be sold * Sales cost per unit

    = 8,500 * 45

    = 382,500

    Total sales cost = $382,500

    Step:3

    Profit or Loss = Total sales price - Total cost

    = 382,500 - 390,000

    = - 7,500 (Negative indicates Loss)

    Loss = $7500

    Result:

    The income (loss) under absorption costing is $7,500, which is mentioned in option C for the Favaz began business.
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