Crystal, the owner of Crystal Clean, is planning for the next year. She uses the absorption method to determine the evaluation of employees and how much to increase their hourly wage. She has budgeted the following information: There were no price or efficiency variances for either year. Crystal writes off any fixed MOH volume variance directly to COGS. Calculate the operating income for year 1.
A)($56,000).
B)($3,500).
C)$10,000.
D)$142,000.

Question

Crystal, the owner of Crystal Clean, is planning for the next year. She uses the absorption method to determine the evaluation of employees and how much to increase their hourly wage. She has budgeted the following information:  There were no price or efficiency variances for either year. Crystal writes off any fixed MOH volume variance directly to COGS. Calculate the operating income for year 1.
A)($56,000). 
B)($3,500). 
C)$10,000. 
D)$142,000.

Quizplus · Accepted Answer

$225,000 ÷ 25,000 = $9 per unit.
23,500 x $9 = $211,500
$225,000 - $211,500 = $13,500 U
($10 + $9) x 22,000 + $13,500 = $431,500
($32 x 22,000) - $431,500 = $272,500
$272,500 - $210,000 - ($3 x 22,000) = ($3,500)
Budgeted FMOH ÷ units produced = FMOH per unit
Actual units produced x FMOH = applied FMOH
Budgeted FMOH - applied FMOH = variance
(V Manufacturing costs per unit + F manufacturing cost per unit) x units sold + variance= adj COGS
(Selling price per unit x units sold) - adj COGS = GM
GM - F operating ex - (V operating ex per unit x units sold) = Op income

Crystal, the Owner of Crystal Clean, Is Planning for the Next