Costmore Manufacturing has provided the following operating results for its first year operations:
$\begin{array}{lr}
\text { Beginning inventory of finished goods } & 0 \
\text { Units produced (no work in process) } & 22,000 \
\text { Units sold } & 18,000 \
\text { Units in ending inventory of finished goods } & 4,000\\text { Sales price }&\$55\text { per unit }\
\text { Variable manufacturing costs }&\$25\text { per unit }\\text { manufactured Variable selling and }\text { administrative expenses }&\$ 7 \text { per unit }\\text { sold Fixed manufacturing }\text { costs for the year } & \$ 110,000 \
\text { Fixed selling and administrative expenses for the year } & \$ 124,000
\end{array}$
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Using the absorption costing method, the net income for year is:
A)$170,000
B)$180,000
C)$200,000
D)$16,000

Question

Quizplus · Accepted Answer

Under absorption costing, all manufacturing costs (both variable and fixed) are assigned to the units produced. The cost of goods sold (COGS) includes both variable manufacturing costs and a portion of the fixed manufacturing costs allocated to the units sold. The calculation is as follows:1. Total variable manufacturing costs = $25 * 22,000 units = $550,0002. Total fixed manufacturing costs = $110,0003. Total manufacturing costs = $550,000 + $110,000 = $660,0004. Cost per unit = $660,000 / 22,000 units = $30 per unit5. COGS (for 18,000 units sold) = $30 * 18,000 = $540,0006. Total sales revenue = $55 * 18,000 units = $990,0007. Total variable selling and administrative expenses = $7 * 18,000 = $126,0008. Total fixed selling and administrative expenses = $124,0009. Total expenses = $540,000 (COGS) + $126,000 (variable S&A) + $124,000 (fixed S&A) = $790,00010. Net income = Total sales revenue - Total expenses = $990,000 - $790,000 = $200,000

Costmore Manufacturing Has Provided the Following Operating Results for Its