Question

Question 1 Of Monsters and Heroes and Men, Ltd. which produces a single product, has provided the following data for its first two months of operations. Since August was the first month of operations, the company had no beginning inventory for August:

:

		August	September
Number of units produced		5,000	8,000
Number of units sold		4,000	9,000
Units in ending inventory		1,000	0
PRICE and COST INFORMATION:
Selling price:	$91
Manufacturing costs:
Direct materials	$11 per unit
Direct labor	$27 per unit
Variable manufacturing overhead	$7 per unit
Fixed manufacturing overhead	$58,000 total
Selling and administrative costs:
Variable selling and administrative expenses	$4 per unit
Fixed selling and administrative expenses	$87,500 total

a. Compute the unit product cost in August using absorption costing.

b. Compute the unit product cost in August using variable costing.

c. Calculate net income for the month of August using absorption costing.

d. Calculate net income for the month of August using variable costing.

e. Calculate net income for the month of September using absorption costing.

f. Calculate net income for the month of September using variable costing.

Answer 1

Unit product Cost Absorption Costing Variable Costing Direct materials 11 $ 11 Direct Labour 27 $ 27 Variable manufacturing overhead 7 $ |Fixed manufacturing overhead (Refer Note -1) | $ 11.60 Unit product Cost 57 S 45 Note-1 Fixed manufacturing overhead per unit Total fixed manufacturing overhead/No of units produced =$ 58000 / 5000 11.60

Variable Income statement August Per Unit Sales Variable cost Contribution Fixed cost Profit/ Loss Total 91 $ 364,000 (A) 4000 Units * $ 91 49 $ 241,000 (B) Refer Working note-1 42 $ 123,000 C=(A)-(B) $ 145,500 D S (22,500) E=C-D Sales Variable cost Contribution Fixed cost Profit/ Loss September Per Unit Total 91 $ 819,000 (A) 9000 Units * $ 91 49 $ 396,000 (B) Refer Working note-2 42 $ 423,000 C=(A)-(B) $ 145,500 D $ 277,500 E=C-D

Working note-1 Total Direct materials Direct Labour Variable manufacturing overhead Variable selling and admnistrative expenses August Cost per unit No of units 11 5000 $ $ 27 5000 $ 5000 $ 4000 $ $ 49 55,000 135,000 35,000 16,000 241,000 Working note-2 Total Direct materials Direct Labour Variable manufacturing overhead Variable selling and admnistrative expenses September Cost per unit No of units $ 11 8000 $ $ 27 8000 $ 8000 $ 9000 $ $ 49 88,000 216,000 56,000 36,000 396,000 Working note-3 Fixed manufacturing overhead Fixed selling and administrative expenses Total Fixed Cost August $58,000 $87,500 $145,500 Septemebr $58,000 $87,500 $145,500

Absorption Income statement Sales Less: Cost of goods sold Gross Profit Less: Selling and administrative expenses Profit/ Loss August September $ 364,000 $ 819,000 $ 283,000 $ 418,000 $ 81,000 $ 401,000 Refer Working Note-1 $ 103,500 $ 123,500 $ (22,500) $ 277,500 Working Note-1 Direct materials Direct Labour Variable manufacturing overhead Fixed manufacturing overhead Cost of goods sold August September $ 55,000 $ 88,000 $ 135,000 $ 216,000 $ 35,000 $ 56,000 $ 58,000 $ 58,000 S 283,000 $ 418,000 Working Note-2 Variable selling and admnistrative expenses Fixed selling and administrative expenses Selling and administrative expenses August September $ 16,000 $ 36,000 $ 87,500 $ 87,500 $ 103,500 $ 123,500