Question

Faxon Company, which has only one product, has provided the following data concerning its most recent month of operations: selling price $137 units in beg. inventory 0 units produced 3,000 units sold 2900 units in beg. inv. 100 VC per unit direct material 40 variable cost per unit 53 var. manufacturing OH 6 variable selling and admin 9 fixed fixed manuf, OH $69,000 Fixed selling and admin 5,800 What is the product cost per unit using absorption costing? Using variable costing? What is the value of the ending inventory using absorption costing? Using variable costing? Prepare an income statement for the month using the absorption costing method (traditional income statement). Prepare an income statement for the month using the variable costing method and the contribution format income statement. Reconcile the variable costing and absorption costing net operating incomes for the month.

Answer 1

Part 1

product cost per unit using absorption costing = direct material + Variable cost per unit + Variable manufacturing overhead + Fixed manufacturing overhead = 40 + 53 + 6 +(69000/3000) = 40 + 53 + 6 + 23 = $122 per unit

Part 2

the product cost per unit using variable costing = direct material + Variable cost per unit + Variable manufacturing overhead = 40 + 53 38 + 6 = $99 per unit

Part 3

the value of the ending inventory using absorption costing = ending inventory units * absorption cost per unit = 100 * 122= $12200

Part 4

the value of the ending inventory using variable costing = ending inventory units * variable cost per unit = 100*99 = $9900

Part 5

income statement for the month using the absorption costing method (traditional income statement)

Sales(2900*137)		397300
Less : cost of goods sold (2900*122)		353800
Gross profit		43500
Less: selling and administrative expenses
Variable (2900*9)	26100
Fixed	5800
Total selling and administrative expenses		31900
Net operating income		11600

Part 6

an income statement for the month using the variable costing method and the contribution format income statement

Sales (2900*137)		397300
Less: variable costs
Variable cost of goods sold (2900*99)	287100
Variable selling and administrative expenses (2900*9)	26100
Total variable costs		313200
Contribution margin		84100
Less fixed costs
Fixed manufacturing overhead	69000
Fixed selling and administrative expenses Total fixed expenses	5800	74800
Net operating income		9300

Part 7

Reconcile the variable costing and absorption costing net operating incomes for the month

Absorption costing net operating income	11600
Less: fixed manufacturing overhead cost deferred in	(2300)
Variable manufacturing overhead cost	9300