s Hot Stuff began making hot a

sHot Stuff began making hot and sour soup in August, 2012. The soupsells for $2 for alarge package. Variable production costs are$0.70 per package. Roberta’s Hot Stuff incursmonthly fixedmanufacturing overhead costs of $40,000 and fixed selling andadministrative costof $8,000. On August 31, 2012 ending inventorywas 10,000 soup packages. Assume Roberta’sHot Stuff produced400,000 soup packages in September. Roberta’s Hot Stuff sold406,000 of the soup packages in September. Calculate the Septembernet income using absorption costing.

A. $479,800
B. 479,200
C. 527,800
D. 487,200


Ans. Option B. $479200
Unit product cost:(under absorption costing):
Variable production cost 0.7
Fixed manufacturing overhead (40000/400000) 0.1
Total unit product cost 0.8
Absorptioncosting Income statement
Particulars Amount
Sales (406000*2) 812000
Less: Cost of goods sold:
Opening inventory (10000*0.80) 8000
Add: Cost of goods manufactured (400000*0.8) 320000
Cost of goods available for sale 328000
Less: Ending inventory [(400000+10000-406000)*0.8] -3200 324800
Gross profit 487200
Less: Fixed Selling and Administrative expenses -8000
Net operating income 479200
*Ending inventory for August is equal to thebeginning inventory of September.
*Fixed manufacturing overhead cost per unit =Total fixed manufacturing expenses / No. of unitsproduced
*Ending inventory units = Beginning inventory +Units produced – units sold

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