Question

(25 marks) Telekong City Bhd (TCB) has organized a new division to manufacture and sell modern Muslimah (ladies) praying attire called as 'telekong'. The division's monthly costs are shown as below: Manufacturing cost: Variable cost per unit Direct material Variable manufacturing overhead Fixed manufacturing overhead costs RM76.80 RM 3.20 RM576,000 Selling and administrative cost Variable Fixed (total) 12% on sales RM752,000 TCB regards all of its workers as full-time employees and the company has a long-standing no lay-off policy. Furthermore, production is highly automated. Accordingly, the company includes its labor costs in its fixed manufacturing overhead. The 'telekong' is sold at RM320 each. During April, the number of unit produced was 24,000 units, and the number of unit sold was 20,000 units. Required: a) Compute the unit product cost using: i. Absorption costing. ii. Variable costing (6 marks) (CLO3:PLO2C3) b) Prepare the absorption income statement for April. (4 marks) (CLO3:PL02:03) c) Prepare the contribution income statement using variable costing. (4 marks) (CLO3:PLO2:03)

Answer 1

solution: a. 1. Unit product cost under absorbtion costing Direct Materials Variable manufacturing over head Fixed manufacturing overhead =576000/24000 Unit product cost 76.80 3.20 24.00 104.00 II. Unit product cost under variable costing Direct Materials Variable manufacturing over head Unit product cost 76.80 3.20 80.00 b.Income Statement Absorption Costing sales=20000*320 Less : cost of goods sold (20000*104) Gross Profit Less : selling and administrative expenses =6400000*0.12+752000 net operating income (loss) 6,400,000 2,080,000 4,320,000 1,520,000 2,800,000 6,400,000 1,600,000 768,000 c.Income Statement Variable Costing sales=20000*320 Less : Variable cost of goods sold (20000*80) Less : Variable selling and administrative expenses (6400000*0.12) contribution margin fixed expense : Fixed manufacturing overhead Fixed selling and administrative expenses net operating income 2,368,000 4,032,000 576,000 752,000 1,328,000 2,704,000