Question

QS 18-20B Absorption costing income statement LO P5 Aces Inc., a manufacturer of tennis rackets, began operations this year. The company produced 5,000 rackets and sold 3,900. Each racket was sold at a price of $80. Fixed overhead costs are $60,000, and fixed selling and administrative costs are $64,200. The company also reports the following per unit costs for the year: Variable production costs Variable selling and administrative expenses $24.00 $ 1.00 Required: Prepare an income statement under absorption costing.

Answer 1

ACE'S INC
Absorption Costing income statement
Sales ( 3,900 rackets *$ 80 )		$ 312,000
less: Cost of goods sold
Variable production costs (3900 rackets * $ 24 )	$ 93,600
Fixed overhead costs ( see note 1 )	$ 46,800
Cost of goods sold		($140,400)
Gross profit		$ 171,600
Selling and administrative expense:
variable selling and administrative expenses (3900 *$1 )	$ 3,900
Fixed selling and administrative expenses ( Given )	$ 64,200
Total Selling and administrative expense:	$ 68,100
		($ 68,100)
Net income ( loss )		$ 103,500

note 1 :
in absorption costing , fixed overhead costs based on number of rackets sold but not
number of rackets produced .
Fixed overhead cost per unit = $ 60,000 / 5000 rackets = 12 per racket
So, Fixed overhead costs = 3,900 rackets * $ 12 per racket = $ 46,800