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15 April, 17:56

1. Oxygen, Inc. reports the following information: Units produced 2,500 units Units sold 2,000 units Sales price $200 per unit Direct materials $40 per unit Direct labor $25 per unit Variable manufacturing overhead $20 per unit Fixed manufacturing overhead $90,000 per year Variable selling and administrative costs $15 per unit Fixed selling and administrative costs $75,000 per year Assume that the production costs and sales prices were the same in the previous year. Assume no beginning inventories. Requirements: a) Calculate unit product cost using absorption costing and variable costing. b) Calculate the operating income using absorption costing and variable costing

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  1. 15 April, 18:12
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    Solution and Explanation:

    a.

    Absorption costing

    Direct material 40

    Direct labor 25

    Variable manufacturing overhead 20

    Fixed manufacturing overhead (90,000/2,500) 36

    Unit product cost $121

    Unit product cost using absorption costing = $121

    Variable costing

    Direct material 40

    Direct labor 25

    Variable manufacturing overhead 20

    Unit product cost $85

    Unit product cost using variable costing = $85

    b. Absorption costing income statement

    Sales (2,000 x 200) 400,000

    Cost of goods sold:

    Direct material (2,000 x 40) 80,000

    Direct labor (2,000 x 25) 50,000

    Varoiable manufacturing overhead (2,000 x 20) 40,000

    Fixed manufacturing overhead (90,000 x 2,000/2,500 72,000

    Cost of goods sold - 242,000

    Gross profit 158,000

    Operating expense:

    Variable selling and administrative expense (2,000 x 15) 30,000

    Fixed selling and administrative expense 75,000

    Total operating expense - 105,000

    Net operating income $53,000

    Variable costing income statement

    Sales (2,000 x 200) 400,000

    Variable cost:

    Direct material 80,000

    Direct labor 50,000

    Varoiable manufacturing overhead 40,000

    Variable selling and administrative expense 30,000

    Total variable cost - 200,000

    Contribution margin 200,000

    Fixed cost:

    Fixed manufacturing overhead 90,000

    Fixed selling and administrative expense 75,000

    Total fixed cost - 165,000

    Net operating income $35,000
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