Question

Bell Company manufactures and sells a single product. Cost data for the product follow: (Please explain steps)

Variable costs per unit:

Direct materials $11.5

Direct labor 46

Variable factory overhead 11.5

Variable selling and administrative 11.5

Total variable costs per unit $80.5

Fixed costs per month:

Fixed manufacturing overhead $1,008,000

Fixed selling and administrative 648,000

Total fixed cost per month $ 1,656,000

The product sells for $184 per unit. Production and sales data for May and June, the first two months of operations, are as follows:

Units Produced Units Sold

May 24,000 20,000

June 24,000 28,000

Income statements prepared by the accounting department, using absorption costing.

May June

Sales    $3,680,000 $5,152,000

Cost of goods sold 2,220,000    3,108,000

Gross margin 1,460,000 2,044,000

Selling and administrative expenses 878,000 970,000

Net operating income $582,000    $1,074,000

Required: 1. Determine the unit product cost under absorption costing and variable costing. Unit product cost: Absorption costing Variable costing

2. Prepare contribution format variable costing income statements for May and June.

Sales

Variable expenses:

BLANK

BLANK

options: Direct materials, fixed manufacturing overhead, fixed selling and administrative expenses, sales, variable cost of goods sold, variable selling and administrative expenses

Total variable expenses

BLANK: Contribution margin or Gross margin

Fixed expenses:

(1-2 SPOTS)BLANK: options: Direct materials, fixed manufacturing overhead, fixed selling and administrative expenses, sales, variable cost of goods sold, variable selling and administrative expenses

Total fixed expenses

Net Operating Income or Net Operating Loss

3. Reconcile the variable costing and absorption costing net operating incomes. (Loss and deduction amounts should be indicated with a minus sign.)

Bell Company Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes for May/June -

Variable costing net operating income (loss)

- Add (deduct) fixed manufacturing overhead cost deferred in (released from) inventory under absorption costing -

Absorption costing net operating income (loss)

Answer 1

1. Computation of unit product cost:

Particular	Absortion Costing	Variable Costing
Direct materials	11.5	11.5
Direct labor	46	46
Variable factory overhead	11.5	11.5
Variable selling and administrative	11.5	11.5
Total variable costs per unit	80.5	80.5
Fixed manufacturing overhead (1,008,000 / 24000 unit)	42
Fixed selling and administrative (648,000 / 24000 unit)	27
Total fixed cost per unit	69
Unit Product Cost	149.5	80.5

2. Variable Costing Income Statements

Particular	May	June
No.of Unit Sold	20000	28000
A. Sales @ 184 / Unit	3680000	5152000
Less
Direct materials	11.5	11.5
Direct labor	46	46
Variable factory overhead	11.5	11.5
Variable selling and administrative	11.5	11.5
Variable costs per unit	80.5	80.5
B. Total Veriable Cost	1610000	2254000
C. Contribution Margin (A-B)	2070000	2898000
Fixed manufacturing overhead	1008000	1008000
Fixed selling and administrative	648000	648000
D. Total Fixed Cost	1656000	1656000
Net Operating Income (C-D)	414000	1242000

3. Reconciliation of variable costing and absorption costing net operating incomes

Particular	May	June
Net Operating Income Under Variable Costing	414000	1242000
Add : Fixed Cost deffered in ClosingInventory (69 /unit)	276000	0
Less : Fixed Cost in Opening Inventory (69 /unit)	0	-276000
Net Operating Income Under Absortion Costing	690000	966000