Cornell Products
Cornell Products has the following cost information available for 2009:
$$\begin{array} { l r }
\text { Direct materials } & \$ 1.00 \text { per unit } \
\text { Direct labour } & \$ 2.00 \text { per unit } \
\text { Variable manufacturing overhead } & \$ 1.50 \text { per unit } \
\text { Variable selling and administrative costs } & \$ 50 \text { per unit } \
\text { Fixed manufacturing overhead } & \$ 30000 \
\text { Fixed selling and administrative costs } & \$ 25000
\end{array}$$
During 2009, Cornell produced 6000 units out of which 5400 units were sold for $20 each.
-What is net income under absorption costing?
A) $23 000
B) $29 000
C) $26 000
D) $35 000

Question

Cornell Products
Cornell Products has the following cost information available for 2009:
$$\begin{array} { l r } 
\text { Direct materials } & \$ 1.00 \text { per unit } \
\text { Direct labour } & \$ 2.00 \text { per unit } \
\text { Variable manufacturing overhead } & \$ 1.50 \text { per unit } \
\text { Variable selling and administrative costs } & \$ 50 \text { per unit } \
\text { Fixed manufacturing overhead } & \$ 30000 \
\text { Fixed selling and administrative costs } & \$ 25000
\end{array}$$
During 2009, Cornell produced 6000 units out of which 5400 units were sold for $20 each.
-What is net income under absorption costing?
A) $23 000
B) $29 000
C) $26 000
D) $35 000

Quizplus · Accepted Answer

Under absorption costing, all manufacturing costs (direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead) are included in the cost of the product. The cost per unit is calculated as follows: Direct materials ($1) + Direct labor ($2) + Variable manufacturing overhead ($1.50) + Fixed manufacturing overhead ($30,000 / 6,000 units) = $6.50 per unit. The total cost for 5400 units sold is $6.50 * 5400 = $35,100. Revenue is $20 * 5400 = $108,000. Net income is Revenue - Cost of Goods Sold - Variable Selling and Administrative Costs - Fixed Selling and Administrative Costs = $108,000 - $35,100 - ($50 * 5400) - $25,000 = $29,000.

Cornell Products Cornell Products Has the Following Cost Information Available

Cornell Products
Cornell Products Has the Following Cost Information Available