In: Accounting
Problem 4 Cliffhangers Company had the following product information for March 2019: Selling Price Direct Materials Direct Labor Variable Manufacturing Overhead Variable Selling Fixed Manufacturing Overhead Fixed Selling Production Sales (units) $149 per unit $35 per unit $29 per unit $13 per unit $6 per unit $129,000 $164,000 5,800 units 4,400 units REQUIRED: A. What is the product cost per unit under absorption costing? B. What is the product cost per unit under variable costing? C. Prepare an income statement using absorption costing. D. Prepare an income statement using variable costing.
Answer- a)-Unit product cost under Absorption costing:-Direct materials + Direct Labor+ Variable manufacturing overhead + fixed manufacturing overhead
=$35+$29+$13+$22 = $99 per unit
Explanation:- Unit fixed manufacturing overhead= fixed manufacturing overhead/No. of units produced
=$129000/5800 units =$22 per unit
b)-Unit product cost under Variable costing:-Direct materials + Direct Labor+ Variable manufacturing overhead
=$35+$29+$13 = $77 per unit
c)-
CLIFFHANGERS COMPANY | |||
Income statement (Using absorption costing approach) | |||
Particulars | Amount | ||
$ | |||
Sales (a) | 4400 units*$149 per unit | 655600 | |
Less:- Variable cost of goods sold (b) | |||
Opening inventory | |||
Add:- Variable cost of goods manufactured | 575600 | ||
Direct materials | 5800 units*$35 per unit | 203000 | |
Direct labor | 5800 units*$29 per unit | 168200 | |
Variable manufacturing overhead | 5800 units*$13 per unit | 75400 | |
Fixed manufacturing overhead | 129000 | ||
Variable cost of goods available for sale | 575600 | ||
Less:- Closing inventory | 1400 units*$99 per unit | 138600 | 437000 |
Gross contribution margin C= a-b | 218600 | ||
Less:-Variable selling & administrative exp. | 4400 units*$6 per unit | 26400 | |
Contribution margin | 192200 | ||
Less:- Fixed costs | |||
Selling & administrative exp. | 164000 | ||
Net Income | 28200 |
d)-
CLIFFHANGERS COMPANY | |||
Income statement (Using variable costing approach) | |||
Particulars | Amount | ||
$ | |||
Sales (a) | 4400 units*$149 per unit | 655600 | |
Less:- Variable cost of goods sold (b) | |||
Opening inventory | NIL | ||
Add:- Variable cost of goods manufactured | 446600 | ||
Direct materials | 5800 units*$35 per unit | 203000 | |
Direct labor | 5800 units*$29 per unit | 168200 | |
Variable manufacturing overhead | 5800 units*$13 per unit | 75400 | |
Variable cost of goods available for sale | 446600 | ||
Less:- Closing inventory | 1400 units*$77 per unit | 107800 | 338800 |
Gross contribution margin C= a-b | 316800 | ||
Less:-Variable selling & administrative exp. | 4400 units*$6 per unit | 26400 | |
Contribution margin | 290400 | ||
Less:- Fixed costs | |||
Manufacturing overhead | 129000 | ||
Selling & administrative exp. | 164000 | ||
Net Income | -2600 |