Marin Printing, Inc., prints and binds encyclopedias. The following information was found in the accounting records: Sales price per unit $ 106 Direct materials per unit $ 51 Direct labor per unit $ 14 Variable overhead per unit $ 10 Fixed overhead per unit $ 23 Fixed selling costs $ 49,600 Variable selling costs $ 166,300 Beginning inventory 0 Units produced 106,700 Units sold 99,300 (a) Under absorption costing, what is Marin’s operating income?

$578,500

Explanation:

Sales price per unit = $ 106

Direct materials per unit = $ 51

Direct labor per unit = $14

Variable overhead per unit = $ 10

Fixed overhead per unit = $ 23

Fixed selling costs = $ 49,600

Variable selling costs = $ 166,300

Beginning inventory = 0

Units produced = 106,700

Units sold = 99,300

Under absorption costing,

Unit product cost:

= Direct materials per unit + Direct labor per unit + Variable overhead per unit + Fixed overhead per unit

= $51 + $14 + $10 + $23

= $98

Gross margin:

= Sales - Cost of goods sold

= (99,300 × $106) - (99,300 × $98)

= $10,525,800 - $9,731,400

= $794,400

Total selling and administrative overheads:

= Fixed cost + variable cost

= $49,600 + $166,300

= $215,900

Marin’s operating income:

= Gross margin - Total selling and administrative overheads

= $794,400 - $215,900

= $578,500

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