This management accounting problem explores absorption costing in a manufacturing setting.
Sales: 50,000 units @ $20/unit
Direct Materials $2.00/unit
Direct Labor $2.50/unit
Variable overhead $2.50/unit
Fixed overhead $2.00/unit
1: primary costs (traceable to specific cost object)
2: conversion costs (direct labor, overhead, variable, and fixed costs)
Variable selling $2.00/unit
Inventory levels (Finished Goods)
Beginning inventory 0 units
Ending inventory 10,000 units
* No inventories of Work In Progress (WIP) to report
Cost of Goods Manufactured
(Absorption Costing Method)
60,000 units X $2.00 = $120,000
60,000 units X $3.00 = $180,000
60,000 units X ...
The solution explains and presents the cost of goods manufactured using absorption costing followed by a simple income statement using the calculated amounts.