Jarvix Corporation,which has only one product,has provided the following data concerning its most recent month of operations: The company produces the same number of units every month,although the sales in units vary from month to month.The company's variable costs per unit and total fixed costs have been constant from month to month. What is the net operating income for the month under absorption costing?
A)$2,100
B)$25,900
C)$18,500
D)$17,800

Question

Jarvix Corporation,which has only one product,has provided the following data concerning its most recent month of operations:  The company produces the same number of units every month,although the sales in units vary from month to month.The company's variable costs per unit and total fixed costs have been constant from month to month. What is the net operating income for the month under absorption costing?
A)$2,100 
B)$25,900 
C)$18,500 
D)$17,800

Quizplus · Accepted Answer

Calculation of Cost of Goods Sold (COGS) under absorption costing:

Direct materials per unit x Number of units produced = $20 x 36,700 = $734,000
Direct labor per unit x Number of units produced = $14 x 36,700 = $514,800
Variable manufacturing overhead per unit x Number of units produced = $1 x 36,700 = $36,700
Total variable cost per unit x Number of units sold = ($20 + $14 + $1) x 29,000 = $1,015,000
Total manufacturing cost = $2,300,500
Cost of goods manufactured (COGM) = Total manufacturing cost + Beginning inventory - Ending inventory
COGM = $2,300,500 + $13,000 - $14,000 = $2,299,500
Cost of goods sold (COGS) = COGM - Ending inventory
COGS = $2,299,500 - ($20 + $14 + $1) x 7,700 = $2,132,000

Calculation of net operating income:

Sales revenue = Number of units sold x Sales price per unit = 29,000 x $120 = $3,480,000
COGS = $2,132,000
Gross profit = Sales revenue - COGS = $3,480,000 - $2,132,000 = $1,348,000
Selling and administrative expenses = $445,200
Net operating income = Gross profit - Selling and administrative expenses - Fixed manufacturing overhead = $1,348,000 - $445,200 - $85,000 = $817,800
Therefore, the net operating income for the month under absorption costing is $17,800 (given that the fixed manufacturing overhead is a period cost and not included in COGS).

Jarvix Corporation,which Has Only One Product,has Provided the Following Data