Question

Fresh Air Products manufactures and sells a variety of camping products. Recently the company opened a new plant to manufacture a deluxe portable cooking unit. Cost and sales data for the first month of operations are shown below:

Beginning inventory 0 units

Units produced 10,000

Units sold 8,900

Manufacturing costs

Fixed overhead $80,000

Variable overhead $7 per unit

Direct labour $11 per unit

Direct material $26 per unit

Selling and administrative costs Fixed $195,500

Variable $4 per unit sold

The portable cooking unit sells for $111. Management is interested in the opening month’s results and has asked for an income statement.

a) Calculate the manufacturing cost per unit.

b)  Prepare a variable-costing income statement for the first month of operation.

Answer 1

Answer:-a)-

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

=$26+$11+$7 = $44 per unit

b)-

Fresh Air Products
Contribution Margin statement (Using variable costing approach)
Particulars			Amount
			$
Sales (a)	8900 units*$111 per unit		987900
Less:- Variable cost of goods sold (b)
Opening inventory
Add:- Variable cost of goods manufatured		440000
Direct materials	10000 units*$26 per unit	260000
Direct labor	10000 units*$11 per unit	110000
Variable factory overhead	10000 units*$7 per unit	70000
Variable cost of goods available for sale		440000
Less:- Closing inventory	1100 units*$44 per unit	48400	391600
Gross contribution margin C= a-b			596300
Less:-Variable selling & administrative exp.	8900 units*$4 per unit		35600
Contribution margin			560700
Less:- Fixed costs
Manufacturing overhead			80000
Selling & administrative exp.			195500
Net Income			285200