Mallory Industries has the following cost information for the year just ended: Direct materials $6.00 per unit
Direct labor $2.00 per unit
Variable manufacturing overhead $1.50 per unit
Fixed manufacturing overhead $40,000
Variable selling and administrative cost $3.00 per unit
Fixed selling and administrative cost $50,000
During the year, Mallory produced 10,000 units, out of which 9,100 were sold for $50 each. What is net income under absorption costing?

Results are below.

Explanation:

The absorption costing method includes all costs related to production, both fixed and variable. The unit product cost is calculated using direct material, direct labor, and total unitary manufacturing overhead.

First, we need to calculate the unitary cost value:

Unitary cost= (6 + 2 + 1.5) + 40,000/10,000

Unitary cost= $13.5

Now, the income statement:

Sales= 9,100*50= 455,000

COGS= (13.5*9,100)= (122,850)

Gross profit= 332,150

Total administrative costs= (3*9,100) + 50,000= (77,300)

Net operating income= 254,850

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