Question

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

Selling price	$	168
Units in beginning inventory		0
Units produced		3,580
Units sold		3,120
Units in ending inventory		460
Variable costs per unit:
Direct materials	$	53
Direct labor	$	50
Variable manufacturing overhead	$	15
Variable selling and administrative expense	$	12
Fixed costs:
Fixed manufacturing overhead	$	103,820
Fixed selling and administrative expense	$	9,360

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. Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Required E What is the unit product cost for the month under variable costing? Cost Per Unit Variable costing < Required A Required B >

Answer 1

Solutions:

a.

Computation of Unit Product Cost - Variable Costing
Direct material	$53.00
Direct Labor	$50.00
Variable manufacturing overhead	$15.00
Unit product cost	$118.00

b.

Computation of Unit Product Cost - Absorption Costing
Direct material	$53.00
Direct Labor	$50.00
Variable manufacturing overhead	$15.00
Fixed manufacturing overhead ($103820/3580)	$29.00
Unit product cost	$147

c.

Income Statement - Variable Costing
Sales (3120*$168)		$5,24,160
Variable Costs:
Variable manufacturing Costs (3120*$118)	$3,68,160
Variable Selling and administrative expenses (3120*$12)	$37,440
Total Variable Costs		$4,05,600
Contribution Margin		$1,18,560
Fixed Expenses:
Fixed manufacturing overhead	$1,03,820
Fixed Selling & Administrative Expenses	$9,360
Total Fixed costs		$1,13,180
Net Operating Income		$5,380

d.

Income Statement - Absorption Costing
Sales (3120*$168)		$5,24,160
Less: Cost of Goods sold (3120*$147)		$4,58,640
Gross Profit		$65,520
Less: Selling and admin. Expenses
Variable Selling and administrative expenses (3120*$12)	$37,440
Fixed Selling & Administrative Expenses	$9,360
		$46,800
Net Operating Income		$18,720

e.

Reconciliation of Net Operating income under absorption costing & Variable Costing - For quarter ended Jun 30
Particulars	Amount
Net Operating Income - Variable Costing	$5,380.00
Less: Fixed manufacturing overhead released in inventory (460*$29.00)	$13,340.00
Net Operating Income - Absorption Costing	$18,720.00