Company incurred the following costs while producing 400 units: direct materials, $ 6 per unit; direct labor, $ 27 per unit; variable manufacturing overhead, $ 19 per unit; total fixed manufacturing overhead costs, $ 4 comma 000; variable selling and administrative costs, $ 10 per unit; total fixed selling and administrative costs, $ 3 comma 200. There are no beginning inventories. What is the operating income using absorption costing if 400 units are sold for $ 180 each?

$40,000

Explanation:

The operating income using absorption costing is find out by using the following equation

Sales revenue                        $72,000    (400 units × $180)

Less:

Direct material cost               $2,400    (400 units × $6)  

Direct labor cost                    $10,800   (400 units × $27)  

Variable manufacturing overhead $7,600    (400 units × $19)  

Fixed manufacturing overhead     $4,000

Variable selling and admin cost $4,000   (400 units × $10)  

Fixed selling and admin cost      $3,200

Operating income using absorption costing   $40,000

We simply subtract all expenses from the sales so that the operating income under absorption costing could arrive