Question

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

Selling price	$	192
Units in beginning inventory		0
Units produced		3,660
Units sold		3,430
Units in ending inventory		230
Variable costs per unit:
Direct materials	$	52
Direct labor	$	53
Variable manufacturing overhead	$	15
Variable selling and administrative expense	$	18
Fixed costs:
Fixed manufacturing overhead	$	135,420
Fixed selling and administrative expense	$	13,720

Required:

a. What is the unit product cost for the month under variable costing?

b. What is the unit product cost for the month under absorption costing?

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

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

e. Reconcile the variable costing and absorption costing net operating incomes for the month.

Answer 1

Solutions:

a.

Computation of Unit Product Cost - Variable Costing
Direct material	$52.00
Direct Labor	$53.00
Variable manufacturing overhead	$15.00
Unit product cost	$120.00

b.

Computation of Unit Product Cost - Absorption Costing
Direct material	$52.00
Direct Labor	$53.00
Variable manufacturing overhead	$15.00
Fixed manufacturing overhead ($135420/3660)	$37
Unit product cost	$157

c.

Income Statement - Variable Costing
Sales (3430*$192)		$6,58,560
Variable Costs:
Variable manufacturing Costs (3430*$120)	$4,11,600
Variable Selling and administrative expenses (3430*$18)	$61,740
Total Variable Costs		$4,73,340
Contribution Margin		$1,85,220
Fixed Expenses:
Fixed manufacturing overhead	$1,35,420
Fixed Selling & Administrative Expenses	$13,720
Total Fixed costs		$1,49,140
Net Operating Income		$36,080

d.

Income Statement - Absorption Costing
Sales (3430*$192)		$6,58,560
Less: Cost of Goods sold (3430*$157)		$5,38,510
Gross Profit		$1,20,050
Less: Selling and admin. Expenses
Variable Selling and administrative expenses (3430*$18)	$61,740
Fixed Selling & Administrative Expenses	$13,720
		$75,460
Net Operating Income		$44,590

e.

Reconciliation of Net Operating income under absorption costing & Variable Costing - For quarter ended Jun 30
Particulars	Amount
Net Operating Income - Variable Costing	$36,080.00
Less: Fixed manufacturing overhead released in inventory (230*$37.00)	$8,510.00
Net Operating Income - Absorption Costing	$44,590.00