Q14SE - Horngren'S Financial And Managerial Accounting

Question

Question: Computing absorption costing operating income 

Refer to the information for Concord, Inc. 

Requirements 

1. Using absorption costing, calculate the unit product cost. 
2. Prepare an income statement using the traditional format.

 

Use the following information for Exercises E21-14 and E21-15. 

Concord, Inc. has collected the following data for November (there are no beginning inventories): 

Units produced and sold                                500 units                                                                                                                              Sales price                                                       $ 450 per unit                                                                                                                         Direct materials                                               64 per unit                                                                                                                                      Direct labor                                                       68 per unit                                                                                                                                   Variable manufacturing overhead                 26 per unit                                                                                                                                       Fixed manufacturing overhead                     7,500 per month                                                                                                           Variable selling and administrative costs    15 per unit                                                                                                                Fixed selling and administrative costs          4,400 per month                                                                                            

Step-by-Step Solution

Answer

Answer

 

1. Total unit product cost is $173.
2. Gross profit is $138,500 and operating income is $126,600.

 

Step 1: Calculation of unit product cost using absorption costing

Particulars	Amount
Direct materials	$64
Direct labor	$68
Variable manufacturing overhead	$26
Fixed manufacturing overhead ($7,500/500)	$15
Total unit product cost	$173

Step 2: Income statement using absorption costing

Particulars	Amount
Net sales revenue ($450x500)	$225,000
Less: Cost of goods sold (173x500)	$86,500
Gross profit	$138,500
Less: Selling and administrative cost
Variable selling and administrative cost ($15x500)	$7,500
Fixed selling and administrative cost	$4,400
Operating Income	$126,600