Precision Manufacturing Inc. (PMI) makes two types of industrial component parts—the EX300 and the TX500. An absorption costing income statement for the most recent period is shown below:

Precision Manufacturing Inc.

Income Statement

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,700,000

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . 1,200,000

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000

Selling and administrative expenses . . . . . . . . . 550,000

Net operating loss . . . . . . . . . . . . . . . . . . . . . . . $ (50,000)

PMI produced and sold 60,000 units of EX300 at a price of $20 per unit and 12,500 units of TX500 at a price of $40 per unit. The company’s traditional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company’s two product lines is shown below:



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