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: FAGAN MANUFACTURING COMPANY INCOME STATEMENT FOR THE YEAR ENDING DECEMBER 31, 2009 Sales $900,000 Cost of goods sold: Finished goods inventory, January 1 $ 0 Cost of goods manufactured 812,500 Goods available for sale $812,500 Finished goods inventory, December 31 162,500 Cost of goods sold 650,000 Gross margin $250,000 Less Operating expenses: Selling $135,000 Administrative 30,000 Total selling and administrative 165,000 Operating profit $85,000 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.
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 |
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$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 |
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650,000 |
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Gross margin |
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$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 |
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165,000 |
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Operating profit |
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$85,000 |
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.
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