Question

1. (2pts) Bubbles Inc., which produces a single product, has provided the following data for its most recent month of operation:

Number of units produced		7,000
Variable costs per unit:
Direct materials	$	37
Direct labor	$	43
Variable manufacturing overhead	$	5
Variable selling and administrative expenses	$	1
Fixed costs:
Fixed manufacturing overhead	$	84,000
Fixed selling and administrative expenses	$	119,000

The company had no beginning or ending inventories.

a. Compute the unit product cost under absorption costing. (1pt)

b. Compute the unit product cost under variable costing. (1pt)

2. (3pts) Avalanche Corporation, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price	$	120
Units in beginning inventory		0
Units produced		8,900
Units sold		8,400
Units in ending inventory		500
Variable costs per unit:
Direct materials	$	38
Direct labor	$	36
Variable manufacturing overhead	$	6
Variable selling and administrative expense	$	9
Fixed costs:
Fixed manufacturing overhead	$	151,300
Fixed selling and administrative expense	$	109,200

a. Prepare a contribution format income statement for the month using variable costing. (1.5pts)

b. Prepare an income statement for the month using absorption costing. (1.5pts)

Answer 1

1.a. Unit product cost under absorption costing.
Particulars	($)
Direct Materials (7,000 units * $ 37)	2,59,000
Direct Labour (7,000 units * $ 43)	3,01,000
Variable Manufacturing Overhead (7,000 units *$ 5)	35,000
Fixed manufacturing overhead	84,000
Variable selling and administrative expenses (7,000 units *$ 1)	7,000
Fixed selling and administrative expenses	1,19,000
Total costs	8,05,000
Unit Product cost ($ 8,05,000/7000 units) - Absorption Costing	$ 115/unit
1.a. Unit product cost under Variable costing.
Particulars	Cost per unit ($)
Direct Materials	37
Direct Labour	43
Variable Manufacturing Overhead	5
Variable selling and administrative expenses	1
Cost per unit - Variable Costing	86
2. Avalanche Corporation
2.a Contribution format income statement for the month using variable costing
Particulars	($)
Selling Price	120
Less :
Direct Material Cost	38
Direct Labour cost	36
Variable manufacturing overhead	6
Variable selling and administrative expense	9
Contribution/unit	31
	($)
Total Contribution (8,400 units * $ 31)	2,60,400
Less : Fixed manufacturing overhead	1,51,300
Less : Fixed selling and administrative expense	1,09,200
Profit/(Loss)	(100)
2.b income statement for the month using absorption costing.
Particulars	($)	($)
Material Costs (8,900 units * $ 38)	3,38,200
Labour Costs (8,900 units * $ 36)	3,20,400
Variable manufacturing overhead (8,900 units * $ 6)	53,400
Fixed manufacturing overhead	1,51,300	8,63,300
		8,63,300
Less : Inventory in Closing Stock (500* 97/unit)		48,500
Cost of Production		8,14,800
Variable selling and administrative expense ($ 8,400* $ 9)		75,600
Fixed selling and administrative expense		1,09,200
Total Cost of Sales		9,99,600
Sales Value (8,400 units * $ 120)		10,08,000
Profit/(loss)		8,400