Q5SE - Horngren'S Financial And Managerial Accounting

Question

Calculating gross profit and operating income, absorption costing Calculate the gross profit and operating income for June using absorption costing

Use the following information for Short Exercises S21-4 and S21-5. 

Dracut Company reports the following information for June:

Net Sales Revenue                                            $ 755,000                                             Variable Cost of Goods Sold                               240,000                                                  Fixed Cost of Goods Sold                                   198,000                                                       Variable Selling and Administrative Costs        168,000                                  Fixed Selling and Administrative Costs             79,000

 

Step-by-Step Solution

Answer

Answer

 

Dracut Company’s gross profit is $317,000 and operating income is $70,000.

 

Step 1: Calculation of gross profit using absorption costing

Particulars	Amount
Net sales revenue	$755,000
Less: Cost of goods sold
Variable cost of goods sold	$240,000
Fixed cost of goods sold	$198,000
Gross profit	$317,000

Step 2: Statement showing operating income

Particulars	Amount
Net sales revenue	$755,000
Less: Cost of goods sold
Variable cost of goods sold	$240,000
Fixed cost of goods sold	$198,000
Gross profit	$317,000
Less: Selling and administrative cost
Variable selling and administrative cost	$168,000
Fixed selling and administrative cost	$79,000
Operating Income	$70,000