Question

Olsen Tang LLC produces a single product and has provided the following data for its most recent month of operation:

            Number of units produced and sold                           10,900

            Selling price per unit:                                                 $275

            Variable costs per unit:

                        Direct materials                                               $139

                        Direct labor                                                     $72

                        Variable manufacturing overhead                  $8

                        Variable selling and administrative                $10

            Fixed costs:

                        Fixed manufacturing overhead                       $305,200

                        Fixed selling and administrative                     $66,200

The company had no beginning or ending inventories.

1. What is Olsen Tang’s unit product cost under absorption costing?

2. What is Olsen Tang’s unit product cost under variable costing?

3. What would Olsen Tang’s contribution format income statement look like for the month using variable costing?

Answer 1

Answer:-1)-

Unit product cost under Absorption costing:-Direct materials + Direct Labor+Variable manufacturing overhead + fixed manufacturing overhead

=$139+$72+$8+$28 = $247 per unit

Explanation:- Unit fixed manufacturing overhead= fixed manufacturing overhead/No. of units produced

=$305200/10900 units =$28 per unit

2)-Unit product cost under Absorption costing:-Direct materials + Direct Labor+Variable manufacturing overhead

=$139+$72+$8 = $219 per unit

3)-

Olsen Tang LLC
Contribution Margin statement (Using variable costing approach)
Particulars			Amount
			$
Sales (a)	10900 units*$275 per unit		2997500
Less:- Variable cost of goods sold (b)
Opening inventory		Nil
Add:- Variable cost of goods manufatured		2387100
Variable product costs	10900 units*$219 per unit	2387100
Variable cost of goods available for sale		2387100
Less:- Closing inventory		Nil	2387100
Gross contribution margin C= a-b			610400
Less:-Variable selling & administrative exp.	10900 units*$10 per unit		109000
Contribution margin			501400
Less:- Fixed costs
Manufacturing overhead			305200
Selling & administrative exp.			66200
Net Income			130000