Question

Below is operating information of Weber Light Aircraft, a company that produces light recreational aircraft.

	Per Aircraft	Per Month
Selling price	$900,000
Direct materials	$250,000
Direct labor	$175,000
Variable manufacturing overhead	$15,000
Fixed manufacturing overhead		$200,000
Variable selling and administrative expense	$50,000
Fixed selling and administrative expense		$70,000

	January	February	March
Beginning inventory	0	0	2
Units produced	2	4	3
Units sold	2	2	5
Ending inventory	0	2	0

1. Assume that the company uses variable costing:

a. Compute the unit product cost.

b. Prepare an income statement for January, February and March.

2. Assume that the company uses absorption costing:

a. Compute the unit product cost.

b. Prepare an income statement for January, February and March.

Answer 1

The Absorption Costing Unit Product Cost
		Jan	Feb	Mar
Production Qty		2	4	3
Direct Material		250000	250000	250000
Direct Labour		175000	175000	175000
Varabe Manufacturing OH		15000	15000	15000
Fixed Production Cost (200000/2,4,3)		$100,000.00	$50,000.00	$66,666.67
Unit Product cost		$540,000.00	$490,000.00	$506,666.67
The Variable Costing Unit Product Cost
		Jan	Feb	Mar
Production Qty		2	4	3
Direct Material		250000	250000	250000
Direct Labour		175000	175000	175000
Varabe Manufacturing OH		15000	15000	15000
Unit Product cost		$440,000.00	$440,000.00	$440,000.00

The Absorption Costing Income Statement
	Jan	Feb	Mar
No. of Unit Sold	2	2	5
Sales	$1,800,000.00	$1,800,000.00	$4,500,000.00
Less: Cost of Goods sold	$1,080,000.00	$980,000.00	$2,533,333.33
Gross Margin	$720,000.00	$820,000.00	$1,966,666.67
Less: Selling and distribution expense
Variable S&A	100,000	100,000	250,000
Fixed S&A	70,000	70,000	70,000
Net operating income	$550,000.00	$650,000.00	$1,646,666.67
The Variable Costing Income Statement
	Jan	Feb	Mar
No. of Unit Sold	2	2	5
Sales	$1,800,000.00	$1,800,000.00	$4,500,000.00
Less: Variable cost
variable cost of goods sold	$880,000.00	$880,000.00	$2,200,000.00
Variable selling expense @50000	$100,000.00	$100,000.00	$250,000.00
Contribution margin	$820,000.00	$820,000.00	$2,050,000.00
Fixed expense:
Fixed Manufacturing overheads	$200,000	$200,000	$200,000
Fixed selling expense	$70,000.00	$70,000.00	$70,000.00
Net operating Income	$550,000.00	$550,000.00	$1,780,000.00