Question

CWUIR G 2. Prepare the current year income statement for the company using absorption costing. Part 2 of 3 OAK MART COMPANY Absorption Costing Income Statement 10 points Beginning inventory Manufacturing costs this year eBook Hint Print References Next >

Answer 1

2)

OAK MART COMPANY
Absorption Costing Income Statement
Sales (123250*300)		$36975000
Less: Cost of goods sold
Beginning inventory	$698750
Manufacturing cost this year
Direct materials (120000*$50)	6000000
Direct labor (120000*$64)	7680000
Variable overhead costs	3000000
Fixed overhead costs	7600000
Less: Ending inventory	0
Cost of goods sold		-24978750
Gross margin		11996250
Selling general and administrative expenses
Variable selling and administrative costs	1400000
Fixed selling and administrative costs	4600000
Total selling and administrative expenses		-6000000
Net income (loss)		$5996250
Net income under variable costing is higher than net income under absorption costing by: (6256250-5996250)		$260000
Number of units added to (subtracted from) inventory (123250-120000)		3250
Fixed overhead cost per unit		$80
Fixed costs added to (subtracted from) inventory		$260000

Working Notes:- Calculation of Net income under Variable Costing

Sales (123250*300)		$36975000
Less: Variable costs
Beginning inventory
Variable	$438750
Manufacturing cost this year
Direct materials (120000*$50)	6000000
Direct labor (120000*$64)	7680000
Variable overhead costs	3000000
Less: Ending inventory	0
Variable cost of goods sold	17118750
Variable selling and administrative expenses	1400000
Total variable costs		18518750
Contribution margin		18456250
Less: Fixed costs
Fixed overhead costs	7600000
Fixed selling and administrative costs	4600000
Total fixed expenses		12200000
Net income (loss)		$6256250