Garcia Company has no beginning and ending inventories,and reports the following data about its only product:
$\begin{array}{ll}
\text { Direct materials used } & \$ 270,000 \
\text { Direct labor } & \$ 180,000 \
\text { Fixed indirect manufacturing } & \$ 130,000 \
\text { Fixed selling and administrative } & \$ 150,000\
\text { Variable indirect manufacturing }&\$120,000\
\text { Variable selling and administrative }&\$60,000\
\text { Selling price(per unit) }&\$99
\end{array}$
$\begin{array} { l }
\text {Units produced and sold }&30,000 \
\end{array}$

Garcia Company uses the absorption approach to prepare the income statement.What is the operating income?
A) $2,060,000
B) $2,120,000
C) $2,240,000
D) $2,970,000

Question

Garcia Company has no beginning and ending inventories,and reports the following data about its only product:
$\begin{array}{ll}
\text { Direct materials used } & \$ 270,000 \
\text { Direct labor } & \$ 180,000 \
\text { Fixed indirect manufacturing } & \$ 130,000 \
\text { Fixed selling and administrative } & \$ 150,000\
\text { Variable indirect manufacturing }&\$120,000\
\text { Variable selling and administrative }&\$60,000\
\text { Selling price(per unit) }&\$99
\end{array}$
$\begin{array} { l  }
 \text {Units produced and sold }&30,000 \
\end{array}$

Garcia Company uses the absorption approach to prepare the income statement.What is the operating income?
A) $2,060,000
B) $2,120,000
C) $2,240,000
D) $2,970,000

Quizplus · Accepted Answer

The correct answer is A.The operating income is calculated as follows:Sales revenue = Units sold * Selling price per unit = 30,000 * $99 = $2,970,000Total manufacturing costs = Direct materials used + Direct labor + Fixed indirect manufacturing + Variable indirect manufacturing = $270,000 + $180,000 + $130,000 + $120,000 = $700,000Total selling and administrative expenses = Fixed selling and administrative + Variable selling and administrative = $150,000 + $60,000 = $210,000Cost of goods sold = Total manufacturing costs + Total selling and administrative expenses = $700,000 + $210,000 = $910,000Operating income = Sales revenue - Cost of goods sold = $2,970,000 - $910,000 = $2,060,000

Garcia Company Has No Beginning and Ending Inventories,and Reports the Following