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Q-21-2T1

Expert-verified
Horngren'S Financial And Managerial Accounting
Found in: Page 1152

Short Answer

Hayden Company has 50 units in Finished Goods Inventory at the beginning of the accounting period. During the accounting period, Hayden produced 150 units and sold 200 units for $150 each. All units incurred $80 in variable manufacturing costs and $20 in fixed manufacturing costs. Hayden also incurred $7,500 in Selling and Administrative Costs, all fixed. Calculate the operating income for the year using absorption costing and variable costing.

Answer

The operating income is $2,500 under absorption costing and variable costing.

See the step by step solution

Step by Step Solution

Step 1: Income statement using absorption costing

Particulars

Amount

Net sales revenue ($150*200)

$30,000

Less: Cost of goods sold ($100*200)

$20,000

Gross profit

$10,000

Less: Selling and administrative cost

$7,500

Operating Income

$2,500

Step 2: Income statement using variable costing

Particulars

Amount

Net sales revenue ($150*200)

$30,000

Less: Variable costs ($80*200)

$16,000

Contribution margin

$14,000

Less: Fixed costs

Fixed costs of goods sold($20*200)

$4,000

Fixed selling and administrative cost

$7,500

Operating Income

$2,500

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