Burke Company produced 8,000 units of inventory and sold 6,000 of them.The company incurred the following production costs: Variable manufacturing cost: $6.00 per unit
Fixed manufacturing overhead cost: $24,000
Assuming the company sells its product at a price of $15 per unit,and incurred $10,000 in selling and administrative costs,what is the amount of net income under absorption costing?

Question

Quizplus · Accepted Answer

Under absorption costing, all manufacturing costs (both variable and fixed) are assigned to the product. The cost of goods sold (COGS) under absorption costing includes variable manufacturing costs and a portion of the fixed manufacturing overhead allocated to each unit sold. The calculation is as follows:1. Total variable manufacturing cost: 8,000 units * $6/unit = $48,0002. Total fixed manufacturing overhead cost: $24,0003. Total production cost: $48,000 + $24,000 = $72,0004. Cost per unit: $72,000 / 8,000 units = $9/unit5. COGS (for 6,000 units sold): 6,000 units * $9/unit = $54,0006. Sales revenue: 6,000 units * $15/unit = $90,0007. Gross profit: $90,000 - $54,000 = $36,0008. Net income: Gross profit - Selling and administrative costs = $36,000 - $10,000 = $26,000

Burke Company Produced 8,000 Units of Inventory and Sold 6,000