Farris Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Farris Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price	$	132
Units in beginning inventory		0
Units produced		9,200
Units sold		8,800
Units in ending inventory		400

Variable costs per unit:
Direct materials	$	23
Direct labor	$	65
Variable manufacturing overhead	$	11
Variable selling and administrative expense	$	15
Fixed costs:
Fixed manufacturing overhead	$	138,000
Fixed selling and administrative expense	$	9,300

What is the net operating income for the month under absorption costing?

Multiple Choice

• $11,100
• $6,000
• $17,100

  Correct
• $28,500

Explanation

Direct materials	$	23
Direct labor		65
Variable manufacturing overhead		11
Fixed manufacturing overhead cost ($138,000 ÷ 9,200 units produced)		15
Absorption costing unit product cost	$	114

Sales ($132 per unit × 8,800 units)	$	1,161,600
Cost of goods sold ($114 per unit × 8,800 units)		1,003,200
Gross margin		158,400
Selling and administrative expenses ($15 per unit × 8,800 units + $9,300)		141,300
Net operating income	$	17,100

Columbia Corporation produces a single product. The company's variable costing income statement for November appears below:

Columbia Corporation produces a single product. The company's variable costing income statement for November appears below:

Columbia Corporation
Income Statement
For the Month ended November 30
Sales ($20 per unit)	$	858,000
Variable expenses:
Variable cost of goods sold		514,800
Variable selling expense		128,700
Total variable expenses		643,500
Contribution margin		214,500
Fixed expenses:
Manufacturing		105,870
Selling and administrative		70,580
Total fixed expenses		176,450
Net operating income	$	38,050

During November, 35,290 units were manufactured and 8,290 units were in beginning inventory. Variable production costs have remained constant on a per unit basis over the past several months.

Under absorption costing, for November the company would report a:

Garrison 16e Rechecks 2018-06-22

Multiple Choice

• $15,220 loss
• $15,220 profit

  Correct
• $38,050 profit
• $70,580 profit

Explanation

Units sold = $858,000 ÷ $20 per unit = 42,900 units

Variable cost of goods sold ($514,800 ÷ 42,900 units)	$	12
Fixed manufacturing overhead cost ($105,870 ÷ 35,290 units)		3
Absorption costing unit product cost	$	15

Sales ($20 per unit × 42,900 units)	$	858,000
Cost of goods sold ($15 per unit × 42,900 units)		643,500
Gross margin		214,500
Selling and administrative expenses ($128,700 + $70,580)		199,280
Net operating income	$	15,220