Question

NIcks frozen meals produces frozen​ meals, which it sells for each. The company uses the FIFO inventory costing​ method, and it computes a new monthly fixed manufacturing overhead rate based on the actual number of meals produced that month. All costs and production levels are exactly as planned. The following data are from the​ company's first two months in​ business: LOADING...​(Click the icon to view the​ data.)

Requirements 1. Compute the product cost per meal produced under absorption costing and under variable costing. Do this first for January and then for February.

2. Prepare separate monthly income statements for January and for​ February, using the​ following: a. Absorption costing b. Variable costing.

3. Is operating income higher under absorption costing or variable costing in​ January? In​ February? Explain the pattern of differences in operating income based on absorption costing versus variable costing

	January		February
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1,500	meals	1,900	meals
Production. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2,000	meals	1,600	meals
Variable manufacturing expense per meal. . . . . . . . . . . .	$3		$3
Sales commission expense per meal. . . . . . . . . . . . . . . .	$2		$2
Total fixed manufacturing overhead. . . . . . . . . . . . . . .	$800		$800
Total fixed marketing and administrative expenses. . . . .	$500		$500

Answer 1

COMPUTE PRODUCT COST PER MEAL PRODUCED UNDER ABSORPTION COSTING AND UNDER VARIABLE COSTING
ABSORPTION COSTING
In Absorption Costing Fixed and variable expenses are used for calculating cost.
JANUARY
	per meal
Variable Manufacturing expenses	$3
sales commission	$2
Total manufacturing overhead 800/ 2000	$0.40
total fixed marketing and administrative expenses
500/2000	$0.25
	$6
FEB
	PER MEAL
Variable Manufacturing Expenses	3
sales commission expense	2
total fixed manufacturing overhead	0.5
800/1600
total fixed marketing and administrative expenses	0.3125
500/1600
	5.8125

VARIABLE COSTING
ONLY CONSIDER VARIABLE COST
JANUARY
Variable Manufacturing expenses	3
sales commission	2
TOTAL PRODUCT COST	5

FEB
	PER MEAL$
Variable Manufacturing Expenses	3
sales commission expense	2
TOTAL PRODUCT COST	5

HEERE SALE VALUE IS NOT GIVEN,THEN IN INCOME STATEMENT CAN CALCULATED ONLY TOTAL COST BUT WHEN THERE IS SALE PER UNIT WILL GIVEN.

THEN CAN CALCULATE INCOME

jan- absorption costing

Variable manufacturing expenses	6000
sales commision expenses 2*1500	3000
total manufacturing overhead	800
total fixed marketing and administrative expneses	500
total cost	10300

variable costing

Variable manufacturing expenses	6000
sales commision expenses 2*1500	3000
total cost	9000

feb

ABSORPTION COSTING
feb
variable manufacturing expenses	4800
sales commission 2*1900	3800
total fixed manufacturing overhead	800
total fixed marketing and administrative expenses	500
	9900

variable costing
feb
variable manufacturing expenses	4800
sales commission 2*1900	3800
	8600