In: Accounting
Arrowhead is a manufacturing company that produces only one product, an electronic chip, and has provided the following data concerning its operations in January and February 2020:
January 2020 was the company’s first month of operations. The company has theoretical capacity to produce 1,200 chips a month without impacting any fixed costs. Since maintenance of the machines needs to be performed weekly, the company has practical capacity to produce 1000 chips a month. The company uses practical capacity as its denominator capacity level when determining a rate for its FMOH. The company uses FIFO inventory method for reporting purposes. All relevant costs are presented in the chart below and all estimated costs are equal to the actual costs incurred:
January 2020 February 2020
Selling price $400 $400
Chips in beginning FG inventory 0 200
Chips produced 800 800
Chips sold 600 600
Chips in ending FG inventory 200 400
Variable costs per unit:
Direct materials $25 $25
Direct labor $40 $40
Variable manufacturing overhead $15 $15
Variable selling and administrative $ 10 $ 10
Fixed costs:
Fixed manufacturing overhead $120,000 $120,000
Fixed selling and administrative $30,000 $30,000
A. What is the unit product cost for February 2020 under variable costing?
B. What is the unit product cost for February 2020 under absorption costing?
C. Create a contribution format income statement for February 2020. SHOW YOUR WORK. CLEARLY LABEL ALL STEPS.
D. What is the dollar value of the adjustment for product-volume variance to cost of goods sold (CGS) under absorption costing (if any) for February 2020? Don’t forget to indicate if this adjustment increases or decreases CGS.