Question

Question 41 Fresh Air Products manufactures and sells a variety of camping products. Recently the company opened a new plant to manufacture a deluxe portable cooking unit. Cost and sales data for the first month of operations are shown below: Beginning inventory 0 units Units produced 12,000 Units sold 10,000 Manufacturing costs     Fixed overhead $108,000     Variable overhead $3 per unit     Direct labour $12 per unit     Direct material $30 per unit Selling and administrative costs     Fixed $200,000     Variable $4 per unit sold The portable cooking unit sells for $110. Management is interested in the opening month’s results and has asked for an income statement. Assuming the company uses absorption costing:

Calculate the manufacturing cost per unit. Manufacturing cost $ per unit

2- Prepare an absorption-costing income statement for the first month of operation.

Answer 1

Calculation of Manufacturing Cost Per Unit
Particulars	Per Unit Costs
Direct Labor	$                                    12.00
Direct Material	$                                    30.00
Variable Overhead	$                                      3.00
Fixed Overhead       (108000/12000)	$                                      9.00
Manufacturing Cost per unit	$                                    54.00

Fixed Overhead per unit (Absorption Costing) = Budgeted Overhead / Budgeted Production

2.

Income Statement for First Month of Operation
	Particulars	Amount
(A)	Sales (10000*110)	$                      11,00,000.00
(B)	Less: Variable Costs
	Direct Labor (12*10000)	$                        1,20,000.00
	Direct Material (30*10000)	$                        3,00,000.00
	Variable Overhead (3*10000)	$                            30,000.00
	Variable Selling Costs (4*10000)	$                            40,000.00
(C )	Contribution (A)-(B)	$                        6,10,000.00
(D)	Less: Fixed Costs
	Fixed Overhead (9*10000)	$                            90,000.00
	Fixed Selling Costs	$                        2,00,000.00
	Net Profit/(Loss) (C )-(D)	$                        3,20,000.00