Question

Mahugh Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price		191
Units in beginning inventory		0
Units produced		4,080
Units sold		3,140
Units in ending inventory		940
Variable costs per unit:
Direct materials		47
Direct labor		54
Variable manufacturing overhead		17
Variable selling and administrative		19
Fixed costs:
Fixed manufacturing overhead	$	155,040
Fixed selling and administrative	$	12,560

  

Required:

a. What is the unit product cost for the month under variable costing? (Do not round intermediate calculations.)

b.  What is the unit product cost for the month under absorption costing?

c.  Prepare a contribution format income statement for the month using variable costing.

d.  Prepare an income statement for the month using absorption costing.

e.  Reconcile the variable costing and absorption costing net operating incomes for the month

Answer 1

a) Unit product cost under variable costing

Direct material	47
Direct labor	54
Variable manufacturing overhead	17
Unit product cost	118

b) Unit product cost under absorption costing

Direct material	47
Direct labor	54
Variable manufacturing overhead	17
Fixed manufacturing overhead (155040/4080)	38
Unit product cost	156

c) Contribution format income statement

Sales (3140*191)		599740
Variable cost of goods sold (3140*118)		370520
Manufacturing margin		229220
variable selling and administrative expense (3140*19)		59660
Contribution margin		169560
Fixed cost
Fixed manufacturing overhead	155040
Fixed selling and administrative expense	12560
Total fixed cost		167600
Net operating income		1960

d) Income statement

Sales	599740
Cost of goods sold (156*3140)	489840
Gross profit	109900
Selling and administrative expense (3140*19+12560)	72220
Net operating income	37680

e) Reconciliation

Variable costing net operating income	1960
Add: Fixed manufacturing overhead deferred in ending inventory (940*38)	35720
Absorption costing net operating income	37680