Use the following information for items
Green Company sells its product for $11,000 per unit.Variable costs per unit are: manufacturing, $6,000; and selling and administrative, $125.Fixed costs are: $30,000 manufacturing overhead, and $40,000 selling and administrative.There was no beginning inventory at 1/1/10.Production was 20 units per year in 2010 - 2012.Sales were 20 units in 2010, 16 units in 2011, and 24 units in 2012.
-Income under absorption costing for 2012 is
A)$33,000.
B)$39,000.
C)$41,000.
D)$47,000.

Question

Use the following information for items 
Green Company sells its product for $11,000 per unit.Variable costs per unit are: manufacturing, $6,000; and selling and administrative, $125.Fixed costs are: $30,000 manufacturing overhead, and $40,000 selling and administrative.There was no beginning inventory at 1/1/10.Production was 20 units per year in 2010 - 2012.Sales were 20 units in 2010, 16 units in 2011, and 24 units in 2012.
-Income under absorption costing for 2012 is
A)$33,000.
B)$39,000.
C)$41,000.
D)$47,000.

Quizplus · Accepted Answer

Under absorption costing method, all manufacturing costs including fixed manufacturing overhead are assigned to the units produced. Total variable costs per unit is $6,125 ($6,000 + $125). Total fixed manufacturing cost per unit is ($30,000/20) = $1,500. Total fixed selling and administrative cost per unit is ($40,000/20) = $2,000. Therefore, total product cost per unit under absorption costing is $9,625 ($6,125 + $1,500 + $2,000).
Total cost of goods sold for 2012 is 20 units x $9,625 = $192,500.
Since sales were 24 units at $11,000 per unit, total sales revenue for 2012 is $264,000.
Therefore, gross profit under absorption costing for 2012 is $71,500 ($264,000 - $192,500).
Using the same method, gross profit for 2010 and 2011 is $90,000 and $60,000, respectively.
Income under absorption costing is calculated as follows:
2010: $90,000 - $30,000 = $60,000
2011: $60,000 - $30,000 = $30,000
2012: $71,500 - $30,000 = $41,500
Therefore, income under absorption costing for 2012 is $41,000 (Choice C).

Use the Following Information for Items