Question

andgh company, which has only one product, has provided the following data concerning its most re month of operations: Selling price $122 For you to answer: a) What is the unit product cost for the month under variable costing? (2 marks) b) What is the unit product cost for the month under absorption costing? (2 marks) c) Prepare an income statement for the month using the contribution format and the variable costing method. (4 marks) d) Prepare an income statement for the month using the absorption costing method. (4 marks) e) Reconcile the variable costing and absorption costing operating incomes for the month. (2 Units in beginning inventory 0 8.300 8,200 100 Units produced Units sold Units in ending inventory Variable costs per unit Direct materials Direct labour Variable manufacturing overhead Variable selling and administrative $27 46 Fixed costs Fized manufacturing overhead Fixed selling and administrative marks) $199,200 106,600

Answer 1

1)	Calculation of unit product cost for the month under variable costing.
	Particulars	Amount ($)
	Direct materials	27
	(+)Direct labour	46
	(+)Variable manufacturing overheads	4
	Unit product cost	77
2)	Calculation of unit product cost for the month under absorption costing.
	Particulars	Amount ($)
	Direct materials	27
	(+)Direct labour	46
	(+)Variable manufacturing overheads	4
	(+)Fixed manufacturing overheads ( 199200 / 8300)	24
	Unit product cost	101
3)	Income statement (variable costing)
	Particulars	Amount ($)	Amount($)
	Sales ( 8200 * $122 )		1000400
	(-) Variable expenses
	Variable cost of goods sold
	Beginning inventory	0
	(+)variable manufacturing cost ( 8300*$77)	639100
	(-)Ending inventory (100* $77)	7700
	(+)Variable selling and administrative cost(8200* $7)	57400	688800
	Contribution		311600
	(-) Fixed expenses
	fixed manufacturing overheads	199200
	Fixed selling and administrative cost	106600	305800
	Net income		5800
4)	Income statement (Absorption costing)
	Sales(8200*$122)		1000400
	(-) cost of goods sold
	beginning inventory	0
	(+) cost of goods manufactured (8300*$101)	838300
	(-)ending inventory (100*$101)	10100	828200
	gross margin		172200
	(-)selling and administrative cost
	Variable selling and administrative cost(8200* $7)	57400
	Fixed selling and administrative cost	106600	164000
	Net income		8200
5)	Reconciliation of variable costing and absorption costing operating income
	Variable costing net income	5800
	(+)fixed manufacturing overhead cost deferred in inventory under absorption costing	2400
	Absorption costing net income	8200