Question

Company, which has only one product, has provided the following data concerning its most recent 5. Lee month of operations: Selling price vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. $95 Units in beginning inventory 100 6,200 5,900 400 Units produced Units sold Required: Units in ending inventory a) What is the unit product cost for the month under variable costing? (2 marks) b) What is the unit product cost for the month under absorption costing? (2 marks) c) Prepare an income statement for the month using the contribution format and the variable costing method. (4 Marks) d) Prepare an income statement for the month using the absorption costing method. (4 Marks) e) Reconcile the variable costing and absorption costing operating incomes for the month. (2 marks) Variable costs per unit Direct materials $42 28 Direct labour Variable manufacturing overhead Variable selling and administrative Fixed costs Fixed manufacturing overhead Fixed selling and administrative $62,000 35,400 The company produces the same number of units every month, although the sales in units

Answer 1

		Month			Month
	Opening Units	100		Fixed M OH	62000
	Unit Produced	6200		Unit Produced	6200
	Units Sold	5900		Recovery Rate PU	10.00
	Closing Units	400
	Variable Costing:			Absorption Costing
	Unit Product Cost:	Month		Unit Product Cost:	Month
	Direct Material	42.00		Direct Material	42.00
	Direct Labor	28.00		Direct Labor	28.00
	Variable M OH Cost	1.00		Variable M OH Cost	1.00
				Fixed M OH	10.00
	Total Unit Cost	71.00		Total Unit Cost	81.00
	Variable Costing:			Absorption Costing
	Lee Company			Lee Company
	Income Statement			Income Statement
	Particulars	Month		Particulars	Month
	Sales	560500		Sales	560500
	Variable Expenses:			Less: COGS
	COGS	418900		Beginning Inventory	8100
	Selling & Admni	29500		Cost of Goods Manufactured	502200
	Contribution Margin	112100		Total Cost Available for Sales	510300
	Less: Period Expenses:			Closing Inventory	32400
	Fixed M OH	62000		Cost of Goods Sold	477900
	Fixed S&A Exp	35400
	Net Operating Income	14700		Gross Profit	82600
				Less: S&A Expense
				Variable	29500
				Fixed	35400
				Net Operating Income	17700
	Reconciliation Between variable Costing And Absorption Costing:
	Particulars	Costing Type	Month
	Net Operating Income	Variable Costing:	14700
	Less: Fixed M Cost Transferred in This Year(100*10)		1000
	Add: Fixed M OH Transferred in Next Year (400*10)		4000
	Net Operating Income	Absorption Costing	17700