Osawa, Inc., planned and actually manufactured 260,000 units of its single product in2017 , its first year of operation. Variable manufacturing cost was $26 per unit produced. Variable operating (nonmanufacturing) cost was $11 per unit sold. Planned and actual fixed manufacturing costs were $ 520,000. Planned and actual fixed operating (nonmanufacturing) costs totaled $ 370000. Osawa sold 180,000 units of product at $ 44 per unit. Requirement 1. Osawa 's 2017 operating income using absorption costing is
(a) $ 530,000 , (b) $ 370,000 , (c) $ 740,000 , (d) $900,000, or (e) none of these. Show supporting calculations.

(a) $ 530,000

Explanation:

total production 260,000 units

variable manufacturing $26 per unit = $6,760,000

variable S&A $11 per unit

planned and actual fixed manufacturing $520,000

planned and actual fixed S&A $370,000

total costs during the year = $10,510,000

units sold 180,000 x $44 = $7,920,000

cost of goods sold per unit = ($26 x 180,000) + (180,000 x $520,000/260,000) = $4,680,000 + $360,000 = $5,040,000

total operating expenses = ($11 x 180,000) + $370,000 = $1,980,000 + $370,000 = $2,350,000

net income = $7,920,000 - $5,040,000 - $2,350,000 = $530,000

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