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Absorption Costing: Absorption costing states that the goods that have been produced have absorbed all the costs of manufacturing. In other words the cost related to manufacture like direct material, direct labor, variable manufacturing overhead and fixed manufacturing overhead are count under product cost. To prepare: Income statement under absorption costing. Solution: Compute fixed manufacturing overhead per unit. Given, Total fixed manufacturing overhead costs are $78,000. Number of rackets produced is 6,000. Formula to calculate fixed manufacturing overhead per unit, Fixed manufacturing overhead per unit = Total fixed manufacturing overhead costs Number of rackets produced Substitute $78,000 for total fixed manufacturing overhead costs and 6,000 for Number of rackets produced 6,000. Fixed manufacturing overhead per unit = $ 78 , 000 6 , 000 = $ 13 Hence, the fixed manufacturing overhead per unit is $13. Calculation of total cost per unit Particulars Amount per unit ($) Variable production cost 25 Add: Fixed manufacturing overhead 13 Cost per unit under absorption costing 38 Table (1) So, the total cost per unit is $38. Income statement (Absorption costing) A Inc Income Statement Particulars Amount ($) Sales revenue 441,000 ( 4900 rackets × $90 per racket ) Less: Cost of goods sold ( 4900 rackets × $ 38 per racket ) 186,200 Gross margin 254,800 Less: Expenses Variable selling and administrative expenses ( 4900 rackets × $2 per racket ) 9,800 Fixed Expenses 65,200 75,000 Net Profit 179,800 Table (2) So, net profit under absorption costing is $179,800

Absorption Costing: Absorption costing states that the goods that have been produced have absorbed all the costs of manufacturing. In other words the cost related to manufacture like direct material, direct labor, variable manufacturing overhead and fixed manufacturing overhead are count under product cost. To prepare: Income statement under absorption costing. Solution: Compute fixed manufacturing overhead per unit. Given, Total fixed manufacturing overhead costs are $78,000. Number of rackets produced is 6,000. Formula to calculate fixed manufacturing overhead per unit, Fixed manufacturing overhead per unit = Total fixed manufacturing overhead costs Number of rackets produced Substitute $78,000 for total fixed manufacturing overhead costs and 6,000 for Number of rackets produced 6,000. Fixed manufacturing overhead per unit = $ 78 , 000 6 , 000 = $ 13 Hence, the fixed manufacturing overhead per unit is $13. Calculation of total cost per unit Particulars Amount per unit ($) Variable production cost 25 Add: Fixed manufacturing overhead 13 Cost per unit under absorption costing 38 Table (1) So, the total cost per unit is $38. Income statement (Absorption costing) A Inc Income Statement Particulars Amount ($) Sales revenue 441,000 ( 4900 rackets × $90 per racket ) Less: Cost of goods sold ( 4900 rackets × $ 38 per racket ) 186,200 Gross margin 254,800 Less: Expenses Variable selling and administrative expenses ( 4900 rackets × $2 per racket ) 9,800 Fixed Expenses 65,200 75,000 Net Profit 179,800 Table (2) So, net profit under absorption costing is $179,800

Managerial Accounting

Managerial Accounting

7th Edition

ISBN: 9781260247886

Author: Wild

Publisher: MCG

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Chapter 6, Problem 5QS

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Managerial Accounting

Ch. 6 - Prob. 1MCQ Ch. 6 - Prob. 2MCQ Ch. 6 - Prob. 3MCQ Ch. 6 - Prob. 4MCQ Ch. 6 - Prob. 5MCQ Ch. 6 - Prob. 1DQ Ch. 6 - Prob. 2DQ Ch. 6 - Prob. 3DQ Ch. 6 - Prob. 4DQ Ch. 6 - Prob. 5DQ

Ch. 6 - Prob. 6DQ Ch. 6 - Prob. 7DQ Ch. 6 - Prob. 8DQ Ch. 6 - Prob. 9DQ Ch. 6 - Prob. 10DQ Ch. 6 - Prob. 11DQ Ch. 6 - Prob. 12DQ Ch. 6 - Prob. 13DQ Ch. 6 - Prob. 14DQ Ch. 6 - Prob. 1QS Ch. 6 - Prob. 2QS Ch. 6 - Prob. 3QS Ch. 6 - Prob. 4QS Ch. 6 - Prob. 5QS Ch. 6 - Prob. 6QS Ch. 6 - Prob. 7QS Ch. 6 - Prob. 8QS Ch. 6 - Prob. 9QS Ch. 6 - Prob. 10QS Ch. 6 - Prob. 11QS Ch. 6 - Prob. 12QS Ch. 6 - Prob. 13QS Ch. 6 - Prob. 14QS Ch. 6 - Prob. 15QS Ch. 6 - Prob. 16QS Ch. 6 - Prob. 17QS Ch. 6 - Prob. 18QS Ch. 6 - Prob. 19QS Ch. 6 - Prob. 20QS Ch. 6 - Prob. 1E Ch. 6 - Prob. 2E Ch. 6 - Prob. 3E Ch. 6 - Prob. 4E Ch. 6 - Prob. 5E Ch. 6 - Prob. 6E Ch. 6 - Prob. 7E Ch. 6 - Prob. 8E Ch. 6 - Prob. 9E Ch. 6 - Prob. 10E Ch. 6 - Prob. 11E Ch. 6 - Prob. 12E Ch. 6 - Prob. 13E Ch. 6 - Prob. 14E Ch. 6 - Prob. 15E Ch. 6 - Prob. 16E Ch. 6 - Prob. 1PSA Ch. 6 - Prob. 2PSA Ch. 6 - Prob. 3PSA Ch. 6 - Prob. 1PSB Ch. 6 - Prob. 2PSB Ch. 6 - Prob. 3PSB Ch. 6 - Prob. 6SP Ch. 6 - Prob. 1AA Ch. 6 - Prob. 2AA Ch. 6 - Prob. 3AA Ch. 6 - Prob. 1BTN Ch. 6 - Prob. 2BTN Ch. 6 - Prob. 3BTN Ch. 6 - Prob. 4BTN Ch. 6 - Prob. 5BTN Ch. 6 - Prob. 6BTN

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