Question

Fresh Air Products manufactures and sells a variety of camping products. Recently the company opened a new plant to manufacture a deluxe portable cooking unit. Cost and sales data for the first month of operations are shown below:

Beginning inventory		0	units
Units produced		10,000
Units sold		8,700
Manufacturing costs
Fixed overhead		$110,000
Variable overhead		$4	per unit
Direct labour		$10	per unit
Direct material		$29	per unit
Selling and administrative costs
Fixed		$208,400
Variable		$4	per unit sold

The portable cooking unit sells for $111. Management is interested in the opening month’s results and has asked for an income statement.

(a) Prepare an absorption-costing income statement for the first month of operation.

Answer 1

Solution

Absorption costing income statement
Sales	$         965,700.00
Cost of goods sold	$         469,800.00
Gross profit	$         495,900.00
Operating expenses
Selling and administrative expenses	$         243,200.00
Net income	$         252,700.00

Working

Unit product cost as per absorption costing
	Per Unit
Direct material	$                    29.00
Direct labor	$                    10.00
Variable manufacturing overhead	$                      4.00
Fixed manufacturing overhead	$                    11.00
Unit product cost as per absorption costing	$                    54.00
Cost of goods sold (8700 x 54)	$ 469,800
Selling and administrative expenses	(208400)+(8700*4)