Question

Nelter Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit: 119 370 6,420 6,330 460 Direct materials Direct labor 46 21 Variable manufacturing overhead Variable selling and administrative expense Fixed costs: 2 18 Fixed manufacturing overhead Fixed selling and administrative expense $141,240 $56,970 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.

Answer 1

Required a :
Direct materials per unit	46
Direct labor per unit	21
Variable manufacturing overhead per unit	2
Unit product cost under variable costing	69
Variable costing income statement
Sales ( 6330 * 119 )		753270
Variable expenses :
Cost of goods sold ( 6330 * 69 )	436770
Selling and administrative expense ( 6330 * 18 )	113940
		550710
Contribution margin		202560
Fixed expenses :
Manufacturing overhead	141240
Selling and administrative expense	56970
		198210
Operating income		4350

Required b :
Direct materials per unit	46
Direct labor per unit	21
Variable manufacturing overhead per unit	2
Fixed manufacturing overhead per unit ( 141240 / 6420 )	22
Unit product cost under variable costing	91
Absorption costing income statement
Sales ( 6330 * 119 )	753270
Cost of goods sold ( 6330 * 91 )	576030
Gross profit	177240
Selling and administrative expense [ ( 6330 * 18 ) + 56970 ]	170910
Operating income	6330