Question

1. Company B, manufactures a unique device that is used by internet users to boost internet signals. The following data relates to the first month of operation:

Beginning inventory: 0 units

Units produced: 40,000 units

Units sold: 35,000 units

Selling price: $120 per unit

Marketing and administrative expenses:

Variable marketing and administrative expenses per unit: $4

Fixed marketing and administrative expenses per month: $1,120,000

Manufacturing costs:

Direct materials cost per unit: $30

Direct labor cost per unit: $14

Variable manufacturing overhead cost per unit: $4

Fixed manufacturing overhead cost per month: $1,280,000

Management is anxious to see the success as well as profitability of newly designed unique booster.

1. Calculate unit product cost and prepare income statement under variable costing system and absorption costing system.

2. Prepare income statement under two costing system.

3. Prepare a schedule to reconcile the net operating income under variable and absorption costing system.

Answer 1