Arris Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $ 116 Units in beginning inventory 0 Units produced 9,000 Units sold 8,600 Units in ending inventory 400 Variable costs per unit: Direct materials $ 19 Direct labor $ 61 Variable manufacturing overhead $ 7 Variable selling and administrative expense $ 11 Fixed costs: Fixed manufacturing overhead $ 135,000 Fixed selling and administrative expense $ 8,900 What is the net operating income for the month under absorption costing

$12,500

Explanation:

Absorption costing consider all the cost incurred in production either variable or fixed as production cost and all the operating costs as the period costs. It calculates the gross profit after deducting the cost of goods sold from the net sales and net income after deduction the operating costs from the gross profit.

First of all we need to calculate the product cost.

Manufacturing cost

Direct materials                               $19

Direct labor                                      $61

Variable manufacturing overhead $7

Fixed manufacturing overhead      $15

($135,000/9,000)                                    

Total Product cost                         $102

Now We will calculate the Net Income

Sales (8,600 x $116)                                   $997,600

Less: Cost of goods sold (8,600 x $102)  $877,200

Gross Profit                                                 $120,400

Less:

Variable selling & admin expense            $99,000

($11 x 9,000)

Fixed selling and admin expense             $8,900  

Net Income                                                 $12,500  

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