Question

Beginning inventory		0
Units produced		27,000
Units sold		18,500
Selling price per unit	$	93
Selling and administrative expenses:
Variable per unit	$	3
Fixed (total)	$	518,000
Manufacturing costs:
Direct materials cost per unit	$	24
Direct labour cost per unit	$	14
Variable manufacturing overhead cost per unit	$	9
Fixed manufacturing overhead cost (total)	$	756,000

Since the new case 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.

b. Prepare an income statement for the month. (Do not leave any empty spaces; input a 0 wherever it is required.)

2. Assume that the company uses variable costing.

a. Determine the unit product cost.

b. Prepare a contribution format income statement for the month. (Do not leave any empty spaces; input a 0 wherever it is required.)

Zurgot Inc. has just organized a new division to manufacture and sell specially designed computer tables, using select hardwoods. The division’s monthly costs are shown in the schedule below:

Manufacturing costs:
Variable costs per unit:
Direct materials	$	188
Variable manufacturing overhead	$	19
Fixed manufacturing overhead costs (total)	$	491,960
Selling and administrative costs:
Variable		5	% of sales
Fixed (total)	$	296,180

Zurgot regards all of its workers as full-time employees, and the company has a long-standing no-layoff policy. Furthermore, production is highly automated. Accordingly, the company includes its labour costs in its fixed manufacturing overhead. The tables sell for $424 each.

During the first month of operations, the following activity was recorded:

Units produced		5,020
Units sold		4,040

Required:

1. Compute the unit product cost under each of the following costing method.

2. Prepare an income statement for the month using absorption costing. (Do not leave any empty spaces; input a 0 wherever it is required.)

3. Prepare a contribution format income statement for the month using variable costing. (Do not leave any empty spaces; input a 0 wherever it is required.)

4. Not available in Connect.

5. Reconcile the absorption costing and variable costing operating income figures in (2) and (3) above.

Answer 1