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12 May, 12:58

Brush Industries reports the following information for May: Sales $ 900,000 Fixed cost of goods sold 100,000 Variable cost of goods sold 250,000 Fixed selling and administrative costs 100,000 Variable selling and administrative costs 125,000 Calculate the operating income for May under absorption costing.

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  1. 12 May, 14:51
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    The operating income for May under absorption costing is $325,000

    Explanation:

    For computing the operating income under absorption costing, the calculation is shown below

    Sales - Cost of good sold = Gross Profit

    Gross Profit - Selling & Admin Expenses = Net income

    By following these two equations we can easily compute net income

    First we compute the gross profit

    where,

    Sales is $900,000

    And cost of good sold = Fixed cost of goods sold + Variable cost of goods sold

    So, cost of good sold = $100,000 + $250,000 = $350,000

    Thus, the Gross profit is $900,000 - $350,000 = $550,000

    Now, after computing the gross profit, the selling and admin expenses of variable and fixed should be deducted from gross profit

    So,

    = $550,000 - $100,000 - $125,000

    = $325,000

    Hence, the operating income for May under absorption costing is $325,000
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