Question
In: Accounting
Problem 6-18B Variable and Absorption Costing Unit Product Costs and Income Statements; Explanation of Difference in...
Problem 6-18B Variable and Absorption Costing Unit Product Costs and Income Statements; Explanation of Difference in Net Operating Income [LO6-1, LO6-2, LO6-3]
|
McCracken Aerial, Inc., produces and sells a unique type of TV antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been provided for the first month of the plant’s operation: |
| Beginning inventory | 0 | |
| Units produced | 51,750 | |
| Units sold | 45,000 | |
| Selling price per unit | $ | 70 |
| Selling and administrative expenses: | ||
| Variable per unit | $ | 6 |
| Fixed (total) | $ | 555,000 |
| Manufacturing costs | ||
| Direct materials cost per unit | $ | 14.0 |
| Direct labor cost per unit | $ | 7.0 |
| Variable manufacturing overhead cost per unit | $ | 1 |
| Fixed manufacturing overhead cost (total) | $ | 776,250 |
|
Because the new antenna is unique in design, management is anxious to see how profitable it will be and has asked that an income statement be prepared for the month. |
| Required: |
| 1. | Assume that the company uses absorption costing. |
| a. |
Determine the unit product cost. (Do not round intermediate calculations and round your final answer to 1 decimal place.) |
| b. |
Prepare an income statement for the month. |
| 2. | Assume that the company uses variable costing. |
| a. |
Determine the unit product cost. (Do not round intermediate calculations and round your final answer to 1 decimal place.) |
| b. |
Prepare a contribution format income statement for the month. |
Solutions
Expert Solution
1a.
| Absorption costing | |
| Direct materials | 14.0 |
| Direct labor | 7.0 |
| Variable manufacturing overhead | 1.0 |
| Fixed manufacturing overhead ($776250/51750) | 15.0 |
| Unit product cost $ | 37.0 |
1b.
| McCracken Aerial, Inc. | ||
| Income Statement (Absorption Costing) | ||
| Sales (45000 x $70) | 3150000 | |
| Cost of goods sold (45000 x $37) | 1665000 | |
| Gross profit | 1485000 | |
| Selling and administrative expenses | ||
| Variable (45000 x $6) | 270000 | |
| Fixed | 555000 | |
| Total selling and administrative expenses | 825000 | |
| Net operating income $ | 660000 | |
2a.
| Variable costing | |
| Direct materials | 14.0 |
| Direct labor | 7.0 |
| Variable manufacturing overhead | 1.0 |
| Unit product cost $ | 22.0 |
2b.
| McCracken Aerial, Inc. | ||
| Income Statement (Variable Costing) | ||
| Sales $ (45000 x $70) | 3150000 | |
| Less: Variable costs | ||
| Direct materials (45000 x $14) | 630000 | |
| Direct labor (45000 x $7) | 315000 | |
| Variable manufacturing overhead (45000 x $1) | 45000 | |
| Variable selling and aministrative (45000 x $6) | 270000 | |
| Total variable costs | 1260000 | |
| Contribution margin | 1890000 | |
| Less: Fixed costs | ||
| Manufacturing overhead | 776250 | |
| Selling and administrative overhead | 555000 | |
| Total fixed costs | 1331250 | |
| Net operating income $ | 558750 | |
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