Question

ABC Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $155, Units in beginning inventory 100, Units produced 4,500, Units sold 4,300, Units in ending inventory 300. Variable costs per unit: Direct materials $28, Direct labor $49, Variable manufacturing overhead $7, Variable selling and administrative $7. Fixed costs: Fixed manufacturing overhead $175,500, Fixed selling and administrative $81,700. 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? b) Prepare an income statement for the month using the contribution format and the variable costing method. c) Without preparing an income statement, determine the absorption costing net operating income for the month.

Please provide a detailed answer with required formulae and calculations. Last time I posted this, the answer was incorrect. Thanks

Answer 1

WORKING NOTES : 1
	beginning Inventory	100	Units
	Unit Produced =	4,500	Units
	Unit Sold =	4,300	Units
	Closing Stock	300	Units
	Selling Price Per unit	$                       155.00	Per Units
	Sales Value	$                    6,66,500
	Fixed Overhead recovery Rate =
	Fixed Manufacturing expenses	$                    1,75,500
	Divide by	"/" By
	Number of units Produced	$                          4,500
	Fixed Overhead recovery Rate =	$                          39.00	Per Units
SOLUTION : A
	CALCUALTION OF cost of production units by using variable Costing
	Particulars	Variable Costing Amount
	Diret Materials	$                          28.00
	Direct Labour	$                          49.00
	Vairable Manufacturing Overhead	$                            7.00
	Fixed Manufacturing Overhead (Not taken in variable Costing)	$                                 -
	Cost of Production per unit	$                          84.00
SOLUTION : B
	VARIABLE COSTING INCOME STATEMENTS	Variable Costing
	Particulars	Amount
	Sales	$                    6,66,500
	Cost of Goods Sold
	Beginning inventory(100 Units X $ 84)	$                          8,400
	Cost of Goods Manufactured (45,000 Units X $ 84)	$                    3,78,000
	Less: Ending Inventory (300 Units X $ 84)	$                       25,200
	Cost of Goods Sold	$                    3,61,200
	Variable Selling Expenses (4300 X $ 7)	$                       30,100
	Gross Profit	$                    2,75,200
	Fixed Expenses
	Fixed Manufacturing overhead	$                    1,75,500
	Fixed Selling Expenses	$                       81,700
	Net Income	$                       18,000
SOLUTION : C
	Calculation of income as per absorption costing
	Variable Costing net Operating income	$                       18,000
	Less : Fixed manufacturing Cost included in Beginning inventory under absorption costing (100 Units X $ 39)	$                          3,900
	Add : Fixed Cost included in ending inventory under absorption costing (300 Units X $ 39)	$                       11,700
	Income as per abosprption costing	$                       25,800
	Answer = $ 25,800