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.

Answer 1

A 1 a) Contribution format income statement 2 $698,050 3 Sales 4 Variable costs: 5 Variable cost of goods sold 6 Variable selling and administrative expenses $ 72,840 $534,160 7 Contribution margin $ 461,320 $163,890 8 Fixed costs: 9 Manufacturing overhead 10 Selling and administrative expenses 11 Net income $ 112,100 $36,420 $ 148,520 $ 15,370 12 13 b) Fixed manufacturing overhead per unit $112,100/5,900 $19 Absorption costing income statement 15 16 Sales $698,050 17 Less: Cost of goods sold 18 Gross profit 19 Selling and administrative expenses 20 Net income $576,650 $121,400 $109,260 $ 12,140

A C 1 a) Contribution format income statement 2 3 Sales - 115*6070 4 Variable costs 5 Variable cost of goods sold 6 Variable selling and administrative expenses 7 Contribution margin +(46+27+3)*6070 12*6070 =+B5+B6 +C3-C6 8 Fixed costs: 9 Manufacturing overhead 10 Selling and administrative expenses 11 Net income 112100 +B9+B10 36420 +C7-C10 12 13 b) 14 Fixed manufacturing overhead per unit $112,100/5,900 $19 Absorption costing income statement 15 16 Sales =115*6070 17 Less: Cost of goods sold 18 Gross profit +(46+27+3+ 19) *6070 +B16-B17 - 36420+ (6070*12) +B18-B19 19 Selling and administrative expenses 20 Net income 1 co.