COGS= Beg. FG Inv + COGM - End. FG Inv.
COGM= Beg. WIP Inv + Manufacturing Costs - End WIP Inv. => COGM= Manufacturing costs (since there is no WIP)
=> COGM= Fixed MOH + Variable MOH = (750 units x 20) + (700 units x 90$) = 78,000 $
=> COGS= (100 units x 90$) + 78,000$ - (50 units x 90$) = 82,500 $
*Volume variance is written off in COGS => Find the Volume Variance => Fixed MOH Volume Variance = (Actual Volume - Budgeted Volume) x Standard cost
Fixed MOH= (700 units - 750 units) x 20$ = 1,000 $ Unfavorable
The 1,000$ is written off in the COGS balance and it is debited to COGS => increase COGS amount by 1,000$
Now work for the operating income:
Sales: 750 units x 200$ = 150,000$
-COGS: - 82,500 $
-Adjustment: -1,000$
-S&A: -45,000$
operating income = Sales - (COGS + Adjustment write off to COGS) - S&A = 150,000 - (82,500 + 1,000) - 45,000 = 21,500 $
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Michel Joseph Christian Mitri
Accountant
Kornet Chehwan
Lebanon
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Original Message:
Sent: 09-09-2020 04:24 AM
From: Shri Gowri Sundararaman
Subject: Part 1: Section D
Dremmon Corporation uses a standard cost accounting system. Data for the last fiscal year are as follows.
Beginning inventory of finished goods 100
Production during the year 700
Sales 750
Ending inventory of finished goods 50
Per Unit:
Product selling price $200
Standard variable manufacturing cost 90
Standard fixed manufacturing cost 20*
Budgeted selling and administrative costs (all fixed) $45,000
*Denominator level of activity is 750 units for the year.
There were no price, efficiency, or spending variances for the year, and actual selling and administrative expenses equaled the budget amount. Any volume variance is written off to the cost of goods sold in the year incurred. There are no work-in-process inventories. Assuming that Dremmon used absorption costing, the amount of operating income earned in the last fiscal year was
a. $21,500
b. $27,000.
c. $28,000.
d. $30,000.
The answer is (a) $21,500.
Can someone explain how you get $21,500?
Thank You!