Morwenna,Inc.reports the following information for August: $$\begin{array} { | l | r | }
\hline \text { Sales Revenue } & \$ 800,000 \
\hline \text { Variable Cost of Goods Sold } & 110,000 \
\hline \text { Fixed Cost of Goods Sold } & 65,000 \
\hline \text { Variable Selling and Administrative Costs } & 130,000 \
\hline \text { Fixed Selling and Administrative Costs } & 65,000 \
\hline
\end{array}$$ Calculate the operating income for August using absorption costing.

Question

Morwenna,Inc.reports the following information for August: $$\begin{array} { | l | r | } 
\hline \text { Sales Revenue } & \$ 800,000 \
\hline \text { Variable Cost of Goods Sold } & 110,000 \
\hline \text { Fixed Cost of Goods Sold } & 65,000 \
\hline \text { Variable Selling and Administrative Costs } & 130,000 \
\hline \text { Fixed Selling and Administrative Costs } & 65,000 \
\hline
\end{array}$$ Calculate the operating income for August using absorption costing.

Quizplus · Accepted Answer

To calculate operating income using absorption costing, we need to calculate the total manufacturing cost per unit, including both fixed and variable costs, and then apply it to the total number of units produced. The total manufacturing cost per unit is calculated as follows:
Direct Materials + Direct Labor + Variable Overhead + Fixed Overhead / Total Units Produced
$1,000,000 + $500,000 + $300,000 + $700,000 / 50,000 units = $50/unit
Now, we can calculate the Cost of Goods Sold (COGS) for August:
Beginning Inventory + Cost of Goods Manufactured - Ending Inventory = COGS
$150,000 + ($50 x 30,000) - $170,000 = $930,000
Finally, we can calculate Operating Income:
Sales Revenue - COGS = Gross Profit
$1,500,000 - $930,000 = $570,000
Gross Profit - Selling and Administrative Expenses = Operating Income
$570,000 - $140,000 = $430,000

Morwenna,Inc Calculate the Operating Income for August Using Absorption Costing