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Absorption Costing - Diego Company Manufactures

Under absorption costing, the manufacturing cost per unit was $53 when 53,000 units were produced. The gross margin was $816,000 with net operating income of $67,000. When 48,000 units were both produced and sold, the manufacturing cost per unit increased to $55 and the company had a net operating loss of $33,000. When production and sales quantities are equal, net income is the same under absorption and variable costing.

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66 views2 pages

Absorption Costing - Diego Company Manufactures

Under absorption costing, the manufacturing cost per unit was $53 when 53,000 units were produced. The gross margin was $816,000 with net operating income of $67,000. When 48,000 units were both produced and sold, the manufacturing cost per unit increased to $55 and the company had a net operating loss of $33,000. When production and sales quantities are equal, net income is the same under absorption and variable costing.

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Ishan
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We take content rights seriously. If you suspect this is your content, claim it here.
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Manufacturing Cost per unit under absorption costing when 53,000 Units produced

Description Cost per unit


Direct Material per unit $ 21
Direct labor per unit 10
Variable Manufacturing cost per unit 2
Fixed Manufacturing cost per unit (1,060,000 / 53,000) 20
Manufacturing cost per unit $ 53

5. Calculation of Gross Margin under Absorption costing

Number of Units produced 53,000


Less: number of units sold (48,000)
Ending Inventory 5,000

Sales revenue (48,000 × 70) 3,360,000


Less: Cost of goods sold
Beginning Inventory -
Cost of goods produced (53,000 × 53) 2,809,000
Total Cost of goods available 2,809,000
Less: Ending Inventory (5,000 × 53) (265,000) 2,544,000
Gross Margin 816,000

6.) Net Operating Income (Loss) under absorption costing


Gross Margin 816,000
Less: Selling and administrative expense
Variable (48,000 × 4) 192,000
Fixed 557,000 749,000
Net Operating Income /(loss) 67,000

11)
For 48,000 Units
Description Cost per unit
Direct Material per unit $ 21
Direct labor per unit 10
Variable Manufacturing cost per unit 2
Fixed Manufacturing cost per unit (1,060,000 / 48,000) 22
Manufacturing cost per unit $ 55

Number of Units produced 48,000


Less: number of units sold (48,000)
Ending Inventory -

Sales revenue (48,000 × 70) 3,360,000


Less: Cost of goods sold
Beginning Inventory -
Cost of goods produced (48,000 × 55) 2,644,000
Total Cost of goods available 2,644,000
Less: Ending Inventory - 2,644,000
Gross Margin 716,000
Less: Selling and administrative expense
Variable (48,000 × 4) 192,000
Fixed 557,000 749,000
Net Operating Income /(loss) (33,000)

Note: When the number of Units produced and number of unit sold are same then the net income under
absorption costing was equal to net income of variable costing.

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