Question

wesltley widgets, Inc produces and sells a unique type of widget. The company has just opened a new plant to manufacture the widgets and the following cost and revenue data have been provided for the first month of the plant's operation .Beginning inventory, 0 units Units produced 40,000 units units sold 35,000 selling per unit $60 per unit selling and administrative expenses: variables per unit $2 per unit fixed(total) $500,000 Manufacturing cost: Direct materials cost per unit $14 per unit Direct labor cost per unit $7 per unit Variable manufacturing overhead cost per unit $2 per unit fixed manufacturing overhead cost (total) $600,000.

Assume the the company uses absorption costing

A) determine the product cost.

Direct materials per unit=

Direct labor per unit=

Variable manufacturing overhead per unit=

fixed manufacturing overhead per unit=

total product cost per unit=

B) prepare an income statement for the month

Sales (35,000 units)=

less cost of goods sold=

gross profit margin=

less: Variable selling and administrative=

less: fixed selling and administrative =

net income=

Assume that company uses the contribution approach with variable costing.

Determine the product cost.

a) total product cost

B) prepare an income statement for the month.

Answer 1

	Given Data
	Beginning inventory	0
	Units produced	40000
	Units Sold	35000
	Selling Price Per Unit	60
	Selling and Administrative Expense(Variable)	2
	Selling and Administrative Expense(Fixed)	500000
	Direct Material	14
	Direct Labour	7
	Manufacturing OH (Variable)	2
	Fixed Manufacturing OH	600000
A	Calculation of Product Cost Using Absorbtion Costing
	Direct Material	14
	Direct Labour	7
	Manufacturing OH (Variable)	2
	Fixed Manufacturing OH (Per Unit)	15	(Fixed Manufacturing OH / Units Produced)
	Total Product Cost	38
B	Income statement under absorption costing
	Sales	2100000
	Less: Cost of Goods Sold	1330000
	(35000*38)
	Gross profit Margin	770000
	Less:
	Selling and Administrative Expense(Variable)	70000
	Selling and Administrative Expense(Fixed)	500000
	Net Income	200000
a)	Calculation of Product Cost Using Variable Costing
	Direct Material	14
	Direct Labour	7
	Manufacturing OH (Variable)	2
	Total Product Cost	23
b)	Income statement under variable costing
	Sales	2100000
	Less: Variable Cost
	Direct Material	490000
	Direct Labour	245000
	Manufacturing OH (Variable)	70000
	Gross profit Margin	1295000
	Less:
	Selling and Administrative Expense(Variable)	70000
	Contribution Margin	1225000
	Less: Fixed Expenses
	Fixed Manufacturing OH	600000
	Selling and Administrative Expense(Fixed)	500000
	Net Income	125000
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