Newton Corporation entered into the following transactions during its first year of operations.(Assume all transactions involve cash.)
1)Acquired $2,000 of capital from the owners.
2)Purchased $600 of direct raw materials.
3)Used $400 of these direct raw materials in the production process.
4)Paid production workers $800 cash.
5)Paid $400 for manufacturing overhead (applied and actual overhead are the same).
6)Started and completed 200 units of inventory.
7)Sold 50 units at a price of $12 each.
8)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 by subtracting total expenses from total revenues. Here, total revenue is $12 * 50 units = $600. Total expenses include the cost of goods sold (COGS) and operating expenses. COGS is the sum of direct materials used ($400), direct labor ($800), and manufacturing overhead ($400), totaling $1600 for 200 units produced, or $8 per unit for 50 units sold ($400). Operating expenses are $80. Thus, total expenses are $480. Net income = $600 (revenue) - $480 (expenses) = $120.

Newton Corporation Entered into the Following Transactions During Its First