Question

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

Selling price	$	83
Units in beginning inventory		375
Units produced		2,220
Units sold		2,070
Units in ending inventory		525
Variable cost per unit:
Direct materials	$	21
Direct labor	$	18
Variable manufacturing overhead	$	1
Variable selling and administrative	$	12
Fixed costs:
Fixed manufacturing overhead	$	51,060
Fixed selling and administrative	$	6,210

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.

Required:

a.	What is the unit product cost for the month under variable costing? (Omit the "$" sign in your response.)

	Cost per unit
Variable costing	$

b.	Prepare a contribution format income statement for the month using variable costing. (Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)

Variable Costing Income Statement
(Click to select)  Variable selling and administrative expenses  Sales  Variable cost of goods sold  Net operating income (loss)  Selling and administrative expenses  Manufacturing overhead  Contribution margin		$
Variable expenses:
(Click to select)  Net operating income  Sales  Manufacturing overhead  Contribution margin  Variable cost of goods sold  Selling and administrative expenses  Variable selling and administrative expenses	$
(Click to select)  Net operating income  Variable selling and administrative expenses  Variable cost of goods sold  Sales  Contribution margin  Selling and administrative expenses  Manufacturing overhead
(Click to select)  Sales  Contribution margin  Net operating income (loss)  Selling and administrative expenses  Variable selling and administrative expenses  Manufacturing overhead  Variable cost of goods sold
Fixed expenses:
(Click to select)  Net operating income  Fixed manufacturing overhead  Sales  Fixed selling and administrative expenses  Variable selling and administrative expenses  Variable cost of goods sold  Contribution margin
(Click to select)  Variable selling and administrative expenses  Fixed selling and administrative expenses  Net operating income  Contribution margin  Fixed manufacturing overhead  Sales  Variable cost of goods sold
(Click to select)  Variable selling and administrative expenses  Variable cost of goods sold  Contribution margin  Sales  Selling and administrative expenses  Manufacturing overhead  Net operating income (loss)		$

c.	Without preparing an income statement, determine the absorption costing net operating income for the month. (Omit the "$" sign in your response.)

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
Variable costing net operating income	$
(Click to select)  Add  Deduct  :  (Click to select)  Fixed manufacturing overhead costs released from inventory under absorption costing  Fixed manufacturing overhead costs deferred in inventory under absorption costing
Absorption costing net operating income	$

Answer 1

Answer-a)- The unit product cost for the month under Variable costing =$40 per unit.

Explanation-Unit product cost under Variable costing:-Direct materials + Direct Labor+ Variable manufacturing overhead

= $21 per unit+ $18 per unit+$1 per unit

= $40 per unit

b)-

Packer Company
Income statement (Using variable costing approach)
Particulars			Amount
			$
Sales (a)	2070 units*$83 per unit		171810
Less:- Variable cost of goods sold (b)
Opening inventory	375 units*$40 per unit	15000
Add:- Variable cost of goods manufactured		103800
Direct materials	2220 units*$21 per unit	46620
Direct labor	2220 units*$18 per unit	39960
Variable manufacturing overhead	2220 units*$1 per unit	2220
Variable cost of goods available for sale		103800
Less:- Closing inventory	525 units*$40 per unit	21000	82800
Gross contribution margin C= a-b			89010
Less:-Variable selling & administrative exp.	2070 units*$12 per unit		24840
Contribution margin			64170
Less:- Fixed costs
Manufacturing overhead			51060
Selling & administrative exp.			6210
Net Income			6900

c)-The absorption costing net operating income for the month =10350.

Explanation-

Reconcilation between net operating income under variable & absorption costing method
Particulars		Amount
		$
Net income under variable costing method		6900
Less:-Fixed manufacturing overheads brought in (opening inventories)	375 units*$23 per unit	8625
Add:-Fixed manufacturing overheads carried forword in(closing inventories)	525 units*$23 per unit	12075
Net income under absorption costing method		10350