Question

Potter Corporation produces one product. The following per unit cost information is available:

Direct materials 7.00$
Direct labor 15.00
Variable overhead 8.00
Variable Selling and Admin 2.00

Fixed overhead costs are $100,000 per peiod and fixed selling and administrative costs are$70,000 per period.The selling price is $70 per unit.

Required:
Prepare an absorption costing (traditional) income statement assuming:
a. Production is 8,000 units and sales are 8,000 units.
b. Production is 8,000 units and sales are 9,000 units.
c. Production is 8,000 units and sales are 6,000 units.

Answer 1

Answer:

(a) Profit = $134,000

(b) Profit = $159,500

(c) Profit = $83,000

Explanation:

According to the scenario, calculation are as follows:

Variable cost of goods sold = Total variable production cost + fixed OH per unit

= ( $7 + $15 + $8) + ( $100,000 ÷ 8,000)

= $30 + $12.5

= $42.5

So, Absorption costing income statement are as follows:

(a)  Production is 8,000 units and sales are 8,000 units

Sales = 8,000 × $70 = $560,000

Less: Variable expense

Variable cost of goods sold = 8,000 × $42.5 = 340,000

Less : Variable selling and admin expense

Variable selling and admin expense = 8,000 × $2 = $16,000

Fixed selling expense = $70,000

Profit = $134,000

(b) Production is 8,000 units and sales are 9,000 units

Sales = 9,000 × $70 = $630,000

Less: Variable expense

Variable cost of goods sold = 9,000 × $42.5 = $382,500

Less : Variable selling and admin expense

Variable selling and admin expense = 9,000 × $2 = $18,000

Fixed selling expense = $70,000

Profit = $159,500

(c) Production is 8,000 units and sales are 6,000 units

Sales = 6,000 × $70 = $420,000

Less: Variable expense

Variable cost of goods sold = 6,000 × $42.5 = $255,000

Less : Variable selling and admin expense

Variable selling and admin expense = 6,000 × $2 = $12,000

Fixed selling expense = $70,000

Profit = $83,000