Question

Exercise 19-7 Income reporting under absorption costing and variable costing LO P2

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Oak Mart, a producer of solid oak tables, reports the following data from its second year of business.

Sales price per unit	$	310	per unit
Units produced this year		115,000	units
Units sold this year		118,500	units
Units in beginning-year inventory		3,500	units
Beginning inventory costs
Variable (3,500 units × $140)	$	490,000
Fixed (3,500 units × $80)		280,000
Total	$	770,000
Manufacturing costs this year
Direct materials	$	44	per unit
Direct labor	$	66	per unit
Overhead costs this year
Variable overhead	$	3,400,000
Fixed overhead	$	7,400,000
Selling and administrative costs this year
Variable	$	1,450,000
Fixed		4,400,000

Exercise 19-7 Part 2

2. Prepare the current year income statement for the company using absorption costing.

	OAK MART COMPANY Absorption Costing Income Statement Beginning inventory Manufacturing costs this year Net income (loss) Fixed costs added to(subtracted from) inventory

Answer 1

OAK MART COMPANY
Absorption Costing Income Statement
Sales		36,735,000
Less: Cost of goods sold
Beginning inventory	770,000
Manufacturing costs this year:
Direct materials	5,060,000
Direct labor	7,590,000
Variable overhead costs	3,400,000
Fixed overhead costs	7,400,000
Less: Ending inventory	0
Cost of goods sold		24220000
Gross margin		12,515,000
Selling general and administrative expenses
Fixed selling and administrative costs	4,400,000
Variable selling and administrative expenses	1,450,000
Total fixed expenses		5850000
Net income (loss)		6,665,000
Net income under variable costing is higher than net income under absorption costing costing by:		280,000
Number of units added to (subtracted from) inventory		3,500
Fixed overhead cost per unit		$80
Fixed costs added to (subtracted from) inventory		$280,000