Question

Coverall Inc. produces and sells a unique type of case for a standard-size tablet computer that is guaranteed waterproof but still allows for regular functionality of the tablet. The company has just opened a new plant to manufacture these cases, and the following cost and revenue data have been provided for the first month of the plant’s operation in the form of a worksheet:

Beginning inventory		0
Units produced		30,000
Units sold		20,000
Selling price per unit	$	91
Selling and administrative expenses:
Variable per unit	$	11
Fixed (total)	$	380,000
Manufacturing costs:
Direct materials cost per unit	$	23
Direct labour cost per unit	$	16
Variable manufacturing overhead cost per unit	$	7
Fixed manufacturing overhead cost (total)	$	570,000

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.)

3. Not available in Connect.

Answer 1

Answer 1

Part a)

Absorption Costing	Amount
Direct Materials	23
Direct labor	16
Variable Manufacturing Cost per unit	7
Fixed Manufacturing Overhead cost per unit	19
Unit Product cost	65

Part b)

Absorption Costing Income Statement		Amount
Sales		1820000
Beginning Invenotry	0
Add: Cost of goods manufactured	1950000
Goods available for sale	1950000
Less: Ending Inventory	650000
Cost of goods sold		1300000
Gross Profit		520000
Selling and administrative cost	600000
Net operating income		-80000

Answer 2

Part a)

Variable Costing	Amount
Direct Materials	23
Direct labor	16
Variable Manufacturing Cost per unit	7
Unit Product cost	46

Part b)

Variable costing Income Statement		Amount
Sales		1820000
Less: Variable Expenses
Beginning Invenotry	0
Add: Cost of goods manufactured	1380000
Goods available for sale	1380000
Less: Ending Inventory	460000	920000
Variable cost of goods sold		900000
Variable selling and administrative cost	220000
Contribution Margin		680000
Less: Fixed Expenses
Manufacturing Overhead	570000
Selling and administrative	380000	950000
Net operating income		-270000

Reconcilation		Amount
Net operating income (Variable costing)		-270000
Add: Fixed Manufacturing OH Deffered		190000
in Closing Inventories
Net operating income (absorption costing)		-80000