Question

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	$	192
Variable manufacturing overhead	$	17
Fixed manufacturing overhead costs (total)	$	561,105
Selling and administrative costs:
Variable		15	% of sales
Fixed (total)	$	272,970

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 $490 each.

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

Units produced		5,055
Units sold		4,130

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

Answer 1

Absorption Costing	Year 1
Direct Materials	192
Variable Manufacturing Cost per unit	17
Fixed Manufacturing cost per unit	111
Unit Product cost	320

Variable Costing	Year 1
Direct Materials	192
Variable Manufacturing Cost per unit	17
Unit Product cost	209

Absorption Costing Income Statement		Year 1
Sales		2023700
Beginning Invenotry	0
Add: Cost of goods manufactured	1617600
Goods available for sale	1617600
Less: Ending Inventory	296000
Cost of goods sold		1321600
Gross Profit		702100
Selling and administrative cost	334920
Net operating income		367180

Variable costing Income Statement		Year 1
Sales		2023700
Less: Variable Expenses
Beginning Invenotry	0
Add: Cost of goods manufactured	1056495
Goods available for sale	1056495
Less: Ending Inventory	193325	863170
Variable cost of goods sold		1160530
Variable selling and administrative cost	61950
Contribution Margin		1098580
Less: Fixed Expenses
Manufacturing Overhead	561105
Selling and administrative	272970	834075
Net operating income		264505

Reconcilation		Amount
Net operating income (Variable costing)		264505
Add: Fixed Manufacturing OH Deffered		102675
in Closing Inventories
Net operating income (absorption costing)		367180