Question

Zurgot Inc. has just organized a new division to manufacture and sell specially designed computer tables, using select hardwoods. The division's monthly costs are shown in the schedule below: Manufacturing costs: Variable costs per unit: Direct materials Variable manufacturing overhead Fixed manufacturing overhead costs (total) Selling and administrative costs: Variable Fixed (total) $ 192 $ 13 $438,840 10% of sales $333,900 Zurgot regards all of its workers as full-time employees, and the company has a long-standing no-layoff policy. Furthermore, production is highly automated. Accordingly, the company includes its labour costs in its fixed manufacturing overhead. The tables sell for $489 each. During the first month of operations, the following activity was recorded: Units produced Units sold 4,770 3,550 Required: 1. Compute the unit product cost under each of the following costing method. Unit Product Cost 297 Absorption costing Variable costing 205

Answer 1

Ans. 2	ZURGOT, INC.
	Absorption Costing Income Statement
	PARTICULARS		Amount
	Sales   (3,550 * $489)		$1,735,950
	Less: Cost of goods sold
	Beginning inventory	$0
	Add: Cost of goods manufactured (4,770*$297)	$1,416,690
	Goods available for sale	$1,416,690
	Less: Ending inventory [(4,770 - 3,550) * $297]	-$362,340	$1,054,350
	Gross margin		$681,600
	Selling and administrative expenses		$507,495
	Operating income		$174,105
	*Ending inventory   = (Units produced - Units sold) * Unit product cost under Absorption costing
	*Calculations of Selling and administrative expenses:
	Fixed selling expenses	$333,900
	Variable selling expenses ($1,735,950 * 10%)	$173,595
	Selling and administrative expenses (Total)	$507,495
Ans. 3	ZURGOT, INC.
	Variable Costing Income Statement
	PARTICULARS		Amount
	Sales   (3,550 * $489)		$1,735,950
	Less: Variable cost of goods sold:
	Opening inventory	$0
	Add: Variable cost of goods manufactured (4,770*$205)	$977,850
	Variable cost of goods available for sale	$977,850
	Less: Ending inventory [(4,770 - 3,550) * $205]	-$250,100
	Variable cost of goods sold	$727,750
	Variable Selling and Administrative Expenses	$173,595	$901,345
	Contribution Margin		$834,605
	Less: Fixed expenses:
	Fixed manufacturing overhead	$438,840
	Fixed selling and administrative expenses	$333,900	$772,740
	Operating income		$61,865
	*Variable cost of goods manufactured = Units produced * Variable unit product cost
Ans. 5	Particulars	Amount
	Variable costing operating income (loss)	$61,865
	Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing	$112,240
	Absorption costing operating income (loss)	$174,105
	*Working Notes:
	*Fixed overhead per unit = Fixed overhead / Units produced
	$438,840 / 4,770
	$92 per unit
	*Fixed manufacturing overhead cost deferred in inventory under absorption costing = (Units produced - Units sold) * Fixed manufacturing overhead per unit
	(4,770 - 3,550) * $92
	1,220 * $92
	$112,240