Treble Inc. planned and manufactured 250,000 units of its single product in 2019, its first year of operations. Variable manufacturing costs were $30 per unit of production. Planned and actual fixed manufacturing costs were $600,000. Marketing and administrative costs (all fixed) were $300,000 in 2019. Treble Inc. sold 200,000 units of product in 2019 at $60 per unit.

Full costing operating income for 2019 is calculated to be:

Question

Full costing operating income for 2019 is calculated to be:

Quizplus · Accepted Answer

Full costing (also known as absorption costing) includes all manufacturing costs (variable and fixed) in the cost of a product. To calculate the full costing operating income, we first determine the cost of goods sold (COGS) and then subtract it from the sales revenue, and finally subtract the fixed marketing and administrative costs.1. Sales Revenue = 200,000 units * $60/unit = $12,000,0002. Variable Manufacturing Cost = 200,000 units * $30/unit = $6,000,0003. Fixed Manufacturing Cost Allocated to Sold Units = $600,000 (since under full costing, fixed manufacturing costs are allocated based on units produced, and in this case, we assume the entire amount is allocated because the question does not specify otherwise)4. COGS = Variable Manufacturing Cost + Fixed Manufacturing Cost Allocated to Sold Units = $6,000,000 + $600,000 = $6,600,0005. Gross Margin = Sales Revenue - COGS = $12,000,000 - $6,600,000 = $5,400,0006. Operating Income = Gross Margin - Fixed Marketing and Administrative Costs = $5,400,000 - $300,000 = $5,100,000Therefore, the full costing operating income for 2019 is $5,100,000.