Question

Al Rawabi Company produces a single product with the following information available: No of units produces annually 30,000 Variable cost per unit a) Direct Material, Labor and variable overheard 15 b) Selling & Administrative Expense 5 Fixed Cost per year Manufacturing Overhead 160,000 Selling & Administrative Expense 110,000 a) Calculate unit product cost b) Prepare income statement using both variable and absorption costing? Additional Information 25,000 unit are sold @ 50 each, There is no beginning inventory.

Answer 1

Income statement using Variable Costing
Sales (25000 units* $ 50)		1250000
Less: Variable costs of good sold
Variable costs(DM,DL & VOH) of goods mfd.(30000 units * $15)	450000
Less: Variable costs of ending inventory(5000 units*$15)	75000
Variable costs of goods sold		375000
Gross Contribution margin		875000
Less: Variable Sell.& admn. Expenses(25000*5)		125000
Contribution margin		750000
Less: fixed costs:
Manufacturing Overhead	160000
Selling & Administrative Expense	110000	270000
Net operating Income		480000
Unit product cost under Variable costing = $ 15/unit
Income statement using Absorption Costing
Sales (25000 units* $ 50)		1250000
Cost of goods manufactured
Variable costs(DM,DL & VOH) of goods mfd.(30000 units * $15)	450000
Fixed Manufacturing Overhead	160000
Total cost of goods available for sale	610000
Less:Cost of ending inventory(5000*20.33)	101666.7
Cost of goods sold		508333
Gross margin		741667
Less: Selling & Administrative Expense
Variable	125000
Fixed	110000	235000
Net operating Income		506667
Unit product cost under Absorption costing = 610000/30000= $ 20.3333
Reconciliation of NOIs
NOI under Variable costing	480000
Add:Fixed MOH deferred in ending inventory(160000/30000*5000)	26667
NOI under Absorption costing	506667