Prepare an absorption costing income statement (B) (14 marks) Maxwell Company ma

Question

Prepare an absorption costing income statement

(B) (14 marks) Maxwell Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations: Variable cost per unit: Manufacturing: Direct materials Direct labour. . S18 S 7 s 5 Fixed costs per year: Fixed manufacturing overhead... Fixed selling and administrative expenses $160,000 $110,000 During the year, the company produced 20.000 units and sold 16,000 units. The selling pric of the company's product is $50 per unit.

Explanation / Answer

SOLUTION

Unit product cost

= Direct material + Direct Labor + Variable manufacturing overhead + Fixed manufacturing overhead

= $18 + $7 + $2 + ($200,000/20,000)

= $18 + $7 + $2 + $10

= $37

Absorption costing income statement

Particulars Amount ($) Amount ($) Sales (16,000 * $50) 800,000 Cost of goods sold (16,000 * $37) (592,000) Gross Profit 208,000 Selling and administrative expenses: Variable ($5 * 16,000) 80,000 Fixed 110,000 (190,000) Net operating income 18,000

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