Question

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

Selling price	$	122
Units in beginning inventory		310
Units produced		6,600
Units sold		6,670
Units in ending inventory		240
Variable cost per unit:
Direct materials	$	48
Direct labor	$	26
Variable manufacturing overhead	$	3
Variable selling and administrative	$	13
Fixed costs:
Fixed manufacturing overhead	$	151,800
Fixed selling and administrative	$	46,690

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

b.	Prepare an income statement for the month using absorption costing. (Input all amounts as positive values except losses which should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

Absorption Costing Income Statement
(Click to select)  Cost of goods sold  Selling and administrative expenses  Net operating income (loss)  Sales  Gross margin	$
(Click to select)  Selling and administrative expenses  Net operating income (loss)  Cost of goods sold  Gross margin  Sales
(Click to select)  Net operating income (loss)  Sales  Gross margin  Selling and administrative expenses  Cost of goods sold
(Click to select)  Gross margin  Net operating income (loss)  Cost of goods sold  Selling and administrative expenses  Sales
(Click to select)  Gross margin  Sales  Net operating income (loss)  Cost of goods sold  Selling and administrative expenses	$

Answer 1

Answer-a)-

Nesman Company
Income statement (Using variable costing approach)
Particulars			Amount
			$
Sales (a)	6670 units*$122 per unit		813740
Less:- Variable cost of goods sold (b)
Opening inventory	310 units*$77 per unit	23870
Add:- Variable cost of goods manufactured		508200
Direct materials	6600 units*$48 per unit	316800
Direct labor	6600 units*$26 per unit	171600
Variable manufacturing overhead	6600 units*$3 per unit	19800
Variable cost of goods available for sale		532070
Less:- Closing inventory	240 units*$77 per unit	18480	513590
Gross contribution margin C= a-b			300150
Less:-Variable selling & administrative exp.	6670 units*$13 per unit		86710
Contribution margin			213440
Less:- Fixed costs
Manufacturing overhead			151800
Selling & administrative exp.			46690
Net Income			14950

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

=$48+$26+$3               

= $77 per unit

b)-

Nesman Company
Income statement (Using absorption costing approach)
Particulars			Amount
			$
Sales (a)	6670 units*$122 per unit		813740
Less:- Cost of goods sold (b)
Opening inventory	310 units*$100 per unit	31000
Add:- Cost of goods manufactured		508200
Direct materials	6600 units*$48 per unit	316800
Direct labor	6600 units*$26 per unit	171600
Variable manufacturing overhead	6600 units*$3 per unit	19800
Fixed manufacturing overhead		151800
Cost of goods available for sale		691000
Less:- Closing inventory	240 units*$100 per unit	24000	667000
Gross margin C= a-b			146740
Less:-Variable selling & administrative exp.	6670 units*$13 per unit		86710
Less:- Fixed costs
Selling & administrative exp.			46690
Net Income			13340

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

=$48+$26+$3+$23

= $100 per unit

Unit fixed manufacturing overhead= fixed manufacturing overhead/No. of units produced

=$151800/6600 units

=$23 per unit