Potter Corporation produces one product. The following per unit cost information is available: Direct materials 7.00$
Direct labor 15.00
Variable overhead 8.00
Variable Selling and Admin 2.00

Fixed overhead costs are $100,000 per peiod and fixed selling and administrative costs are$70,000 per period. The selling price is $70 per unit.

Required:
Prepare an absorption costing (traditional) income statement assuming:
a. Production is 8,000 units and sales are 8,000 units.
b. Production is 8,000 units and sales are 9,000 units.
c. Production is 8,000 units and sales are 6,000 units.

(a) Profit = $134,000

(b) Profit = $159,500

(c) Profit = $83,000

Explanation:

According to the scenario, calculation are as follows:

Variable cost of goods sold = Total variable production cost + fixed OH per unit

= ( $7 + $15 + $8) + ( $100,000 ÷ 8,000)

= $30 + $12.5

= $42.5

So, Absorption costing income statement are as follows:

(a)  Production is 8,000 units and sales are 8,000 units

Sales = 8,000 × $70 = $560,000

Less: Variable expense

Variable cost of goods sold = 8,000 × $42.5 = 340,000

Less : Variable selling and admin expense

Variable selling and admin expense = 8,000 × $2 = $16,000

Fixed selling expense = $70,000

Profit = $134,000

(b) Production is 8,000 units and sales are 9,000 units

Sales = 9,000 × $70 = $630,000

Less: Variable expense

Variable cost of goods sold = 9,000 × $42.5 = $382,500

Less : Variable selling and admin expense

Variable selling and admin expense = 9,000 × $2 = $18,000

Fixed selling expense = $70,000

Profit = $159,500

(c) Production is 8,000 units and sales are 6,000 units

Sales = 6,000 × $70 = $420,000

Less: Variable expense

Variable cost of goods sold = 6,000 × $42.5 = $255,000

Less : Variable selling and admin expense

Variable selling and admin expense = 6,000 × $2 = $12,000

Fixed selling expense = $70,000

Profit = $83,000

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