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    Absorption costing: develop a cost of goods manufactured summary & income statement

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    This management accounting problem explores absorption costing in a manufacturing setting.

    From the data that follow from a fictitious manufacturing example, develop a Cost of Goods Manufactured Summary and a brief Absorption Costing Income Statement.


    Sales: 50,000 units @ $20/unit

    Actual Costs:

    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
    Advertising $100,000
    Administrative $50,000
    Inventory levels (Finished Goods)
    Beginning inventory 0 units
    Ending inventory 10,000 units
    * No inventories of Work In Progress (WIP) to report

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    Solution Preview

    Cost of Goods Manufactured
    (Absorption Costing Method)

    Direct Materials
    60,000 units X $2.00 = $120,000
    Direct Labor
    60,000 units X $3.00 = $180,000
    Variable Overhead
    60,000 units X ...

    Solution Summary

    The solution explains and presents the cost of goods manufactured using absorption costing followed by a simple income statement using the calculated amounts.