Question

Neef Corporation has provided the following data for its two most recent years of operation: Selling price per unit $ 84 Manufacturing costs: Variable manufacturing cost per unit produced: Direct materials $ 12 Direct labor $ 5 Variable manufacturing overhead $ 4 Fixed manufacturing overhead per year $ 432,000 Selling and administrative expenses: Variable selling and administrative expense per unit sold $ 5 Fixed selling and administrative expense per year $ 61,000 Year 1 Year 2 Units in beginning inventory 0 3,000 Units produced during the year 12,000 9,000 Units sold during the year 9,000 10,000 Units in ending inventory 3,000 2,000 The net operating income (loss) under absorption costing in Year 2 is closest to:

Answer 1

Answer:

The net operating income under absorption costing in Year 2 is closest to: $75,000

Explanation:

Year 1

Unit Cost (Absorption Costing) = All Manufacturing Costs (Fixed and Variable)

                                                   = $12 + $5 + $4 + $ 432,000/ 12,000

                                                   = $57

Year 2

Unit Cost (Absorption Costing) = All Manufacturing Costs (Fixed and Variable)

                                                   = $12 + $5 + $4 + $ 432,000/ 9,000

                                                   = $69

Income Statement for Year 2 Under absorption costing.

Sales (10,000 × $ 84)                                                                     $840,000

Less Cost of Sales :

Opening Stock (3,000 × $57)                                $171,000

Cost of Goods Manufactured (9,000 × $69)       $621,000

Less Closing Stock (2,000 × $69)                       ($138,000)      ($654,000)

Gross Profit                                                                                     $186,000

Less Expenses :

Selling and administrative expenses :

Variable ( 10,000 ×  $ 5)                                                                ($50,000)

Fixed                                                                                               ($ 61,000)

Net Income / (Loss)                                                                         $75,000