Megredy Company prepared the following absorption-costing income statement for t
ID: 2484840 • Letter: M
Question
Megredy Company prepared the following absorption-costing income statement for the year ended May 31, 20x4.
Sales (16,000 units) $320,000
Cost of goods sold 216,000
Gross margin $104,000
Selling and administrative expenses 46,000
Operating income $ 58,000
Additional information follows: Selling and administrative expenses include $1.50 of variable cost per unit sold. There was no beginning inventory, and 17,500 units were produced. Variable manufacturing costs were $11 per unit. Actual fixed costs were equal to budgeted fixed costs.
Required:
Prepare a variable-costing income statement for the same period.
Answer:
Sales $320,000
Variable expenses:
Manufacturing cost of goods sold1 $176,000
Selling and administrative2 24,000 200,000
Contribution margin $ 120,000
Fixed expenses:
Fixed factory overhead3 $43,750
Fixed selling and administrative4 22,000 65,750
Operating income $ 54,250
For (3) and (4), how did you get the fixed factory overhead and fixed selling and admin.?? (I know the answer, but need clearly explanation) Which formula did you implied?? THANK YOU
Explanation / Answer
Cost statement under absorption costing 16000 units Cost of Goods sold 216000 Selling and administrative expenses 46000 4) It is given selling and administrative expenses include 1.50 variable cost per unit sold Variable part = 16000 x 1.5 24000 Fixed part of selling and administrative 22000 = Total selling expense - variable element = 46000 - 24000, = 22000 3) we are given that variable manufacturing costs were 11 per unit Variable part= 16000 x 11 176000 Absorbed fixed manufacturing overhead on units sold ( 16000 units) 40000 = Total cost of goods sold - variable cost = 216000 - 176000, = 40000 Now we need to convert fixed overheads from units sold to full year overheads Total fixed overheads for year =overheads absorbed on units sold / units sold x units manufactured = 40000 / 16000 x 17500 = 43750