Question

Coverall Inc. produces and sells a unique type of case for a standard-size tablet computer that is guaranteed waterproof but still allows for regular functionality of the tablet. The company has just opened a new plant to manufacture these cases, and the following cost and revenue data have been provided for the first month of the plant’s operation in the form of a worksheet:

Beginning inventory 0

Units produced 20,000

Units sold 15,000

Selling price per unit $ 80

Selling and administrative expenses:

Variable per unit $ 6

Fixed (total) $ 475,000

Manufacturing costs:

Direct materials cost per unit $ 12

Direct labour cost per unit $ 9

Variable manufacturing overhead cost per unit $ 5

Fixed manufacturing overhead cost (total) $ 600,000

Since the new case is unique in design, management is anxious to see how profitable it will be and has asked that an income statement be prepared for the month.

Required:

1. Assume that the company uses absorption costing.

a. Determine the unit product cost.

b. Prepare an income statement for the month. (Do not leave any empty spaces; input a 0 wherever it is required.)

2. Assume that the company uses variable costing.

a. Determine the unit product cost.

b. Prepare a contribution format income statement for the month. (Do not leave any empty spaces; input a 0 wherever it is required.)

Answer 1

Sollution:-1)Assume the company uses absorption costing.

A)Computation of the unit product cost under absorption costing.

Particulars	Amount($)
Direct material	$12
Direct labour	$9
Variable manfacturing overheads	$5
Fixed manfacturing overheads($6,00,00/20,000)	$30
Unit product cost	$56

B)Preparation of income statement under absorption costing.

Particulars	calculation	$	Amount($)
Sales revenue	(15000 unitsx$80)		$12,00,000
Less:-cost of goods sold	(15000 unitsx$56)		$8,40,000
Gross profit			$3,60,000
Less:-Selling and administration Expenses
Variable	(15000 unitsx$6)		$90,000
Fixed	Given		$4,75,000
Net profit			$ -2,05,000

Sollution:-2)Assume that the company uses variable costing.

A)Computation of the unit product cost under Variable costing.

Particulars	Amount($)
Direct material	$12
Direct labour	$9
Variable manfacturing overheads	$5
Unit product cost	$26

B)Preparation of income statement under Variable costing.

Particulars	calculation	$	Amount($)
Sales revenue	(15000 unitsx$80)		$12,00,000
Less:-variable costs
Variable manafacturing costs	(15000 unitsx$26)	$3,90,000
Variable selling and administration costs	(15000 unitsx$6)	$90,000
Total variable costs			$4,80,000
ontribution			$7,20,000
Less:-Fixed costs
Fixed manafacturing costs	Given	$6,00,000
Fixed selling and administration costs	Given	$4,75,000	$10,75,000
Net income			$-3,55,000