Question

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

Selling price		$115
Units in beginning inventory		380
Units produced		5,900
Units sold		6,070
Units in ending inventory		210
Variable costs per unit:
Direct materials		$46
Direct labor		$27
Variable manufacturing overhead		$3
Variable selling and administrative expense		$12
Fixed costs:
Fixed manufacturing overhead		$112,100
Fixed selling and administrative expense		$36,420

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:

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

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

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

Required A Required B Prepare a contribution format income statement for the month using variable costing. Variable Costing Income Statement Variable expenses: Fixed expenses: Required B Required A

Answer 1

	Variable Costing	Absorption Costing
Direct materials	46	46
Direct labor	27	27
Variable manufacturing overhead	3	3
Fixed manufacturing overhead	0	19
Total Per Unit Cost	76	95

Answer a

	Contribution format income statement for the month using variable costing
	Sales (6070*115)		698050
Less	Cost of Goods Sold
	Direct Material (5900*46)	271400
	Direct Labour (5900*27)	159300
	Variable manufacturing overhead (5900*3)	17700
	Total Cost incurred	448400
	Add: Beginning Inventory (380*76)	28880
	Less: Ending Inventory (210*76)	15960
	Cost of Goods Sold		461320
	Gross Profit		236730
Less:	Variable Selling & Admin Exp		72840
	Contribution Margin		163890
Less:	Fixed Costs:
	Fixed manufacturing overhead	112100
	Fixed selling and administrative expense	36420	148520
	Net Income		15370

Answer b

	Contribution format income statement for the month using variable costing
	Sales (6070*115)		698050
Less	Cost of Goods Sold
	Direct Material (5900*46)	271400
	Direct Labour (5900*27)	159300
	Variable manufacturing overhead (5900*3)	17700
	Fixed manufacturing overhead (5900*19)	112100
	Total Cost incurred	560500
	Add: Beginning Inventory (380*95)	36100
	Less: Ending Inventory (210*95)	19950
	Cost of Goods Sold		576650
Less:	Gross Profit		121400
	Variable Selling & Admin Exp		72840
	Fixed selling and administrative expense		36420
	Net Income		12140