Exhibit 6-8
Perry,Inc.produced 15,000 units during the year.Of these,12,000 were sold for $50 each.Other Perry,Inc.data are as follows:
$\begin{array}{lr}
\text { Direct materials } & \$ 8.00 \text { per unit } \
\text { Direct labor } & \$ 6.00 \text { per unit } \
\text { Variable manufacturing overhead } & \$ 2.00 \text { per unit } \
\text { Variable selling and administrative costs } & \$ 1.00 \text { per unit }\
\text { Fixed manufacturing overhead}&\$75,000\
\text { Fixed selling and administrative costs}&\$50,000
\end{array}$

-Refer to Exhibit 6-8.Calculate Perry's operating profit assuming the company uses absorption costing.
A)$271,000
B)$286,000
C)$396,000
D)$370,000
E)None of the answer choices is correct.

Question

Exhibit 6-8
Perry,Inc.produced 15,000 units during the year.Of these,12,000 were sold for $50 each.Other Perry,Inc.data are as follows:
 $\begin{array}{lr}
\text { Direct materials } & \$ 8.00 \text { per unit } \
\text { Direct labor } & \$ 6.00 \text { per unit } \
\text { Variable manufacturing overhead } & \$ 2.00 \text { per unit } \
\text { Variable selling and administrative costs } & \$ 1.00 \text { per unit }\
\text { Fixed manufacturing overhead}&\$75,000\
\text { Fixed selling and administrative costs}&\$50,000
\end{array}$

-Refer to Exhibit 6-8.Calculate Perry's operating profit assuming the company uses absorption costing.
A)$271,000
B)$286,000
C)$396,000
D)$370,000
E)None of the answer choices is correct.

Quizplus · Accepted Answer

Under absorption costing, fixed manufacturing overhead is allocated to each unit produced. The cost per unit is $8 (materials) + $6 (labor) + $2 (variable overhead) + $5 (fixed overhead, $75,000/15,000 units) = $21. The cost of goods sold for 12,000 units is $252,000 (12,000 units x $21). Sales revenue is $600,000 (12,000 units x $50). Gross profit is $348,000 ($600,000 - $252,000). Subtract variable selling and administrative costs ($12,000) and fixed selling and administrative costs ($50,000) to get an operating profit of $286,000.

Exhibit 6-8 Perry,Inc -Refer to Exhibit 6-8

Exhibit 6-8
Perry,Inc -Refer to Exhibit 6-8