Monex reported $65 000 in net profit for the year using absorption costing. The company had no units in beginning inventory, planned and actual production was 20 000 units and sales were 18 000 units during the year. Variable manufacturing costs were $20 per unit and total budgeted fixed manufacturing overhead was $100 000. There was no underapplied or overapplied overhead reported during the year. Determine the net profit under variable costing:a) $115,000 b) $75,000 c) $65,000 d) $55,000
Question
Monex reported 20 per unit and total budgeted fixed manufacturing overhead was 115,000 b) 65,000 d) $55,000
Solution
To determine the net profit under variable costing, we need to understand the difference between absorption costing and variable costing.
Absorption costing includes both variable and fixed manufacturing costs in the cost of a unit of product, whereas variable costing includes only the variable manufacturing costs.
Given that the net profit under absorption costing is $65,000, we need to adjust this figure to reflect the net profit under variable costing.
The key difference between the two methods in this scenario is the treatment of fixed manufacturing overhead. Under absorption costing, all of the fixed manufacturing overhead is allocated to the units produced. Under variable costing, fixed manufacturing overhead is treated as a period expense.
The total fixed manufacturing overhead is 5 per unit ($100,000 / 20,000 units).
However, only 18,000 units were sold. This means that 5 per unit x 2,000 unsold units).
Under variable costing, this $10,000 would be deducted from the net profit reported under absorption costing.
So, the net profit under variable costing would be 10,000 (fixed manufacturing overhead cost included in ending inventory under absorption costing) = $75,000.
Therefore, the correct answer is b) $75,000.
Similar Questions
Monex reported $65,000 of net income for the year by using absorption costing. The company had no beginning inventory, planned and actual production of 20,000 units, and sales of 18,000 units. Standard variable manufacturing costs were $20 per unit, and total budgeted fixed manufacturing overhead was $100,000. If there were no variances, net income under variable costing would be: A. $15,000. B. $55,000. C. $65,000. D. $75,000. E. $115,000.
Using the information below, what would be the profit under variable costing and absorption costing, respectively?Sales $120,000Units Produced 35,000Units Sold 33,260Budgeted and actual fixed overhead cost $84,000Direct manufacturing cost $21,000Selling and administrative expenses $6,000
Last year, Fabre Company produced 20,000 units and sold 18,000 units at a price of $12. Costs for last year were as follows:Direct materials $25,000Direct labor $35,000Variable factory overhead $12,000Fixed factory overhead $37,000Variable selling expense $9,000Fixed selling expense $7,500Fixed administrative expense $15,500Fixed factory overhead is applied based on expected production. Last year, Fabre expected to produce 20,000 units. Assuming that beginning inventory was zero, what would be the profit under variable costing and absorption costing?
Classix Products reported $28,000 in net profit for the year using variable costing. The company had no units in beginning inventory, planned and actual production was 30,000 units, and sales were 25,000 units during the year. Variable manufacturing costs were $15 per unit and total budgeted fixed manufacturing overhead was $150,000. There was no underapplied or overapplied overhead reported during the year. Determine the net profit under absorption costing.
Industrial Dynamics reported a marginal costing profit of $28,000 for the year. During the same period, there was a decrease in inventory of 500 units. The fixed production overhead absorption rate was calculated at $10 per unit. Additionally, variable selling costs amounted to $4,000 and fixed distribution costs totalled $2,000 for the period.Calculate the Absorption Costing Profit.
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.