Newton Corporation entered into the following transactions during its first year of operations. (Assume all transactions involve cash.) Acquired $2,000 of capital from the owners.Purchased $600 of direct raw materials.Used $400 of these direct raw materials in the production process.Paid production workers $800 cash.Paid $400 for manufacturing overhead.Started and completed 200 units of inventory.Sold 50 units at a price of $12 each.Paid $80 for selling and administrative expenses.The amount of net income for the year was:
A) $100.
B) $75.
C) $50.
D) $120.

Question

Quizplus · Accepted Answer

Net income is calculated as Revenue - Expenses. Revenue from selling 50 units at $12 each is $600. Total expenses include the cost of direct materials used ($400), production workers ($800), manufacturing overhead ($400), and selling and administrative expenses ($80), totaling $1680. However, only the cost of goods sold (COGS) and selling and administrative expenses should be subtracted from revenue to calculate net income. COGS for the 50 units sold is a portion of the total production costs. Total production costs are the sum of direct materials used ($400), production workers ($800), and manufacturing overhead ($400), which equals $1600. Since 200 units were produced and only 50 were sold, the COGS is 1/4 of $1600, which is $400. Adding the selling and administrative expenses ($80) gives total expenses of $480. Subtracting this from the revenue ($600) gives a net income of $120.

Newton Corporation Entered into the Following Transactions During Its First