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Fagan Manufacturing uses an absorption costing system
Fagan Manufacturing uses an absorption costing system. In 2009 it manufactured 25,000 units and sold 20,000 units at $45 each. The company’s income statement for year ended December 31 2009 is as follows:
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FAGAN MANUFACTURING COMPANY INCOME STATEMENT FOR THE YEAR ENDING DECEMBER 31, 2009 |
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Sales |
$900,000 |
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Cost of goods sold: |
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Finished goods inventory, January 1 |
$ 0 |
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Cost of goods manufactured |
812,500 |
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Goods available for sale |
$812,500 |
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Finished goods inventory, December 31 |
162,500 |
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Cost of goods sold |
650,000 |
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Gross margin |
$250,000 |
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Less Operating expenses: |
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Selling |
$135,000 |
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Administrative |
30,000 |
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Total selling and administrative |
165,000 |
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Operating profit |
$85,000 |
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The following additional information is available:
Variable costs per unit:
Direct materials $ 9.50
Direct labor 12.00
Manufacturing overhead 4.00
Selling expenses 5.50
Fixed costs for the period:
Manufacturing overhead $175,000
Selling 25,000
Administrative 30,000
REQUIRED
Show ALL necessary workings
(a) When absorption costing was used, how much fixed manufacturing overhead was deferred in finished goods inventory?
(b) Prepare an income statement using variable costing.
(c) Reconcile the profit on the variable costing income statement with the profit shown on the absorption costing income statement.
Expert Solution
PFA
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