Question

Pachur Company, which has only one product, has provided the following data concerning its most recent month of operations:

Selling Price $121

Units in beginning inventory 300

Units produced 6900

Units sold    7100

Units in ending inventory   100

Variable costs per unit:

Direct materials $36

Direct labor $43

Variable manufacturing overhead $3

Variable selling and administrative $11

Fixed Costs:

Fixed manufacturing overhead $131100

Fixed selling and administrative  $49700

The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month.

Required;  (present with no decimal places) :

What is the unit product cost for the month under variable costing? $

Determine the absorption costing net operating income for the month. $

Answer 1

1. For calculating unit product cost under variable costing, only variable costs attributable to manufacture are included, such as manufacturing, labor and manufacturing overheads.

Calculation of unit product cost for the month under variable costing:

Particulars	Amt
Direct materials	$36
Direct labor	$43
Variable manufacturing overhead	$3
Unit Product Cost	$82

2. Absorption costing net operating income

Particulars		Amount
Sales (7100 * $121)		$8,59,100.00
Less: Cost of goods sold
Beginning inventory (300 * $101)	$30,300.00
Add: Production cost (6900 * $101)	$6,96,900.00
Cost of goods available for sale	$7,27,200.00
Less: Ending inventory (100 * $101)	$10,100.00	$7,17,100.00
Gross Profit		$1,42,000.00
Less: Marketing and administrative expense
Variable (7100 * $11)	$78,100.00
Fixed	$49,700.00	$1,27,800.00
Net Operating Income		$14,200.00

Working Note: Calculation of unit product cost for the month under absorption costing:

Particulars	Amt
Direct materials	$36
Direct labor	$43
Variable manufacturing overhead	$3
Fixed manufacturing overhead ($131,100 / 6900)	$19
Unit Product Cost	$101