Question

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

  

Selling price	$	186
Units in beginning inventory		0
Units produced		3,690
Units sold		3,120
Units in ending inventory		570
Variable costs per unit:
Direct materials	$	56
Direct labor	$	52
Variable manufacturing overhead	$	8
Variable selling and administrative	$	18
Fixed costs:
Fixed manufacturing overhead	$	121,770
Fixed selling and administrative	$	9,360

  

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.

   

	MAHUGH CORPORATION Variable Costing Income Statement Variable expenses: Fixed expenses:
d.		Prepare an income statement for the month using absorption costing.

  

	MAHUGH CORPORATION Income Statement Selling and administrative expenses:
e.		Reconcile the variable costing and absorption costing net operating incomes for the month.

       

	Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Variable costing net income Absorption costing net operating income

Answer 1

a)	unit product cost under variable costing
						$
	Direct materials					56
	direct labor					52
	Variable manufacturing overhead					8
	unit product cost					116	answer
b)	unit product cost under absorption costing
						$
	Direct materials					56
	direct labor					52
	Variable manufacturing overhead					8
	Fixed manufacturing overhead			(121770/3,690)=		33
	unit product cost					149	answer
c)	Variable Costing income statement
	Sales	(3120*186)				580320
	Variable expenses
	cost of goods sold		(3120*116)		361920
	Variable selling & adm		(3120*18)		56160
	total variable expense					418080
	Contribution margin					162240
	Fixed expenses:
	fixed manufacturing overhead				121,770
	Fixed selling and administrative				9,360
	total fixed expense					131,130
	net operating income					31,110
c)	Absorption costing income statement
	sales					580320
	Cost of goods sold		(3120*149)			464880
	Gross profit					115440
	Selling and administrativ expense
	variable selling and adm expense				56160
	Fixed selling and adm expense				9,360
	total selling and adm expense					65,520
	net operating income					49,920
d)	Reconciliation
	Variable costing income					31,110
	Add;	fixed overhead deferred in inventory				18810
	Absorption costing net income					49,920