Question

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

Selling price		187
Units in beginning inventory		0
Units produced		3,660
Units sold		3,100
Units in ending inventory		560
Variable costs per unit:
Direct materials		50
Direct labor		55
Variable manufacturing overhead		17
Variable selling and administrative		19
Fixed costs:
Fixed manufacturing overhead	$	124,440
Fixed selling and administrative	$	9,300

  

Required:

a. What is the unit product cost for the month under variable costing? (Do not round intermediate calculations.)

b.  What is the unit product cost for the month under absorption costing?

c.  Prepare a contribution format income statement for the month using variable costing.

d.  Prepare an income statement for the month using absorption costing.

Answer 1

a.CALCULATION OF UNIT PRODUCT COST UNDER VARIABLE COST SYSTEM:
SL.NO	DETAILS	AMOUNT
1	DIRECT MATERIALS	$50
2	DIRECT LABOUR	$55
3	VARIABLE MANUFACTURING OVERHEAD	$17
4	TOTAL COST PER UNIT	$122
b.CALCULATION UNIT PRODUCT COST UNDER ABSORPTION COST SYSTEM:
SL.NO	DETAILS	AMOUNT
1	DIRECT MATERIALS	$50
2	DIRECT LABOUR	$55
3	VARIABLE MANUFACTURING OVERHEAD	$17
4	FIXED MANUFACTURING OVERHEAD (124,440/3660)	$34
5	TOTAL UNIT COST	$156
c. Prepare a contribution format income statement for the month using variable costing.
S.NO	Particulars	Amount	Amount
1	Sales(1897*3100=579700)		579700
2	Less:Variable cost
	Variable cost of goods sold
	Beginning Inventory	0
	Add:Variable manufacturing Cost(3660*122)	446520
	Less:Ending Inventory(560*122)	-68320
	Variable cost of goods sold		-378200
	Variable Selling and Administrative(19*3100)		-58900
3	Contribution Margin(1-2)		142600
4	Less:Fixed Expenses
	Fixed Manufacturing Expenses		-124440
	Fixed Selling and Administrative expenses		-9300
5	Net Operating Income		8860
d. Prepare an income statement for the month using absorption costing.
S.NO	Particulars	Amount	Amount
1	Sales(1897*3100=579700)		579700
2	Less:Variable cost
	Variable cost of goods sold
	Beginning Inventory	0
	Add:Variable manufacturing Cost(3660*156)	570960
	Less:Ending Inventory(560*156)	-87360
	Variable cost of goods sold		-483600
3	Contribution Margin(1-2)		-96100
4	Less:Fixed Expenses
	Variable selling and Administrative expenses(19*560)		-58900
	Fixed Selling and Administrative expenses		-9300
5	Net Operating Income		27900