State Industries has the following information for 20X1:Units produced and sold3,000 unitsSelling Price$260/unitDirect materials$20/unitDirect labor$40/unitFixed manufacturing overhead$120,000/yearFixed selling and administrative costs$160,000/yearVariable manufacturing overhead$35/unitVariable selling and administrative costs$25/unitThere are no beginning inventories. Prepare an income statement for the year under absorption costing.
What will be an ideal response?
| State Industries Income Statement Year Ended December 31, 20X1 | |
| Sales(3,000 units × $260) | $780,000 |
| - Cost of Goods Sold | 405,000 |
| Gross Margin | 375,000 |
| - Selling and Administrative Costs | 235,000 |
| Operating Income | $140,000 |
Feedback: Cost of goods sold = {Total variable manufacturing costs (x units sold)} + Fixed manufacturing overhead.
Cost of goods sold = [($20 + $40 + $35)(Total variable manufacturing costs) × 3,000 units] + $120,000 (Fixed manufacturing overhead). Cost of goods sold = $405,000.
Selling and administrative Costs = ($25 × 3,000 units) + $160,000 = $235,000.
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What will be an ideal response?
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