Problem 6-20 Variable and Absorption Costing Unit Product Costs and Income State
ID: 2455079 • Letter: P
Question
Problem 6-20 Variable and Absorption Costing Unit Product Costs and Income Statements; Explanation of Difference in Net Operating Income LO6-1, LO6-2, LO6-3] High Country, Inc., produces and sells many recreational products. The company has just opened a new plant to produce a folding camp cot that will be marketed throughout the United States. The following cost and revenue data relate to May, the first month of the plant's operation: Beginning inventory Units produced Units sold Selling price per unit Seling and administrative expenses 37,000 32,000 $85 Variable per unit Fixed per month $4 $568,000 Manufacturing costs Direct materials cost per unit Direct labor cost per unit Variable manufacturing overhead cost per unit Fixed manufacturing overhead cost per month $18 $9 $4 $703,000 Management is anxious to see how profitable the new camp cot will be and has asked that an income statement be prepared for May Required 1. Assume that the company uses absorption costing a. Determine the unit product cost. t costExplanation / Answer
1. Assuming that company uses absorption costing
a) calculation of cost per unit
= total cost of qty produced / units produced
= 2566000/37000
=69.35
b) Income statement under absorption costing
particulars amt.
variable mfg cost of qty produced (37000*31) 1147000
+fixed mfg cost of qty produced 703000
tatal mfg cost of qty produced 1850000
+op. stock of finished goods nil
-closing stock of finished goods 250000
[1850000/37000*5000]
total mfg cost of qty sold 1600000
+selling and adm. expenses
variable (32000*4) 128000
fixed 568000 696000
total cost of quantity sold 2296000
+PROFIT (balancing fig) 424000
sales value of qty sold (32000*85) 2720000
2. assuming that company uses variable costing
a) calculation of unit product cost
=total variable cost of qty produced/ qty produced
= 1295000/37000
=35
b) income statement under variable costing
particulars amt.
variable mfg cost of qty produced 1147000
+op. stock of finished goods nil
-closing stock of finished goods 155000
[1147000/37000*5000]
variable mfg. cost of qty sold 992000
+ variable selling cost of qty sold 128000
total variable cost of qty sold 1120000
sales value of qty sold 2720000
contribution of qty sold 1600000
-fixed cost 1271000
profit on qty sold 329000