Can someone help me understand why the difference is $20k instead of $45k? Sorry but the comment doesn't keep any formatting, so it will be a bit messy.
Augusta, Inc., expects manufacturing and sales of 70,000 units of product Maggie, its only product, to occur evenly over a 10-week period. Augusta pays for materials in the week following use. The balance of accounts payable for materials at the beginning of the 10-week period is $40,000. There are no beginning inventories. The following information pertains to product Maggie for the 10-week period:
Sales price $11 per unit
Materials $3 per unit
Manufacturing conversion costs—Fixed $210,000
Variable $2 per unit
Selling and administrative costs—Fixed $45,000
Variable $1 per unit
Actual results are as budgeted, except that 60,000 of the 70,000 units produced were sold. Using absorption costing, what is the difference between the reported income and the budgeted net income?
Answer:
Unit sales 60,000 70,000
Revenue $660,000 $770,000
Less COGS 480,000 560,000
Gross profit $180,000 $210,000
Less Fixed selling/admn. 45,000 45,000
Less Variable selling/admn. 60,000 70,000
Net profit $ 75,000 $ 95,000
The difference is pre-tax net income of $20,000 ($95,000 − $75,000).
FAR - 50, 78
BEC - 67, 72, 75
AUD - 72, 80
REG - 70, 85
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