Question

RICH Inc, produces and sells cosmetic products. The company has just begun manufacturing a new line of moisturizer. The following cost and revenue data relate to February, the first month of production: 32,000 Direct Material Direct Labor $6 $9 Units Produced Units Sold 25,000 Variable MOH Variable Selling & Admin Fixed MOH $64,000 $10,000 Fixed Selling & Admin Determine per unit cost under both variable costing and absorption costing and prepare the income statement for each costing method. Price per unit is $22

Answer 1

Answer-

Rich Inc.
Income statement (Using variable costing approach)
Particulars			Amount
			$
Sales (a)	25000 units*$22 per unit		550000
Less:- Variable cost of goods sold (b)
Opening inventory		NIL
Add:- Variable cost of goods manufactured		544000
Direct materials	32000 units*$6 per unit	192000
Direct labor	32000 units*$9 per unit	288000
Variable manufacturing overhead	32000 units*$2 per unit	64000
Variable cost of goods available for sale		544000
Less:- Closing inventory	7000 units*$17 per unit	119000	425000
Gross contribution margin C= a-b			125000
Less:-Variable selling & administrative exp.	25000 units*$2 per unit		50000
Contribution margin			75000
Less:- Fixed costs
Manufacturing overhead			64000
Selling & administrative exp.			10000
Net Income			1000

Explanation-Unit product cost under Variable costing:-Direct materials + Direct Labor+ Variable manufacturing overhead

=$6+$9+$2 = $17 per unit

Answer-

Rich Inc.
Income statement (Using absorption costing approach)
Particulars			Amount
			$
Sales (a)	25000 units*$22 per unit		550000
Less:- Cost of goods sold (b)
Opening inventory
Add:- Cost of goods manufactured		608000
Direct materials	32000 units*$6 per unit	192000
Direct labor	32000 units*$9 per unit	288000
Variable manufacturing overhead	32000 units*$2 per unit	64000
Fixed manufacturing overhead		64000
Cost of goods available for sale		608000
Less:- Closing inventory	7000 units*$19 per unit	133000	475000
Gross margin C= a-b			75000
Less:-Variable selling & administrative exp.	25000 units*$2 per unit		50000
Less:- Fixed costs
Selling & administrative exp.			10000
Net Income			15000

Explanation- Unit product cost under Absorption costing:-Direct materials + Direct Labor+ Variable manufacturing overhead + fixed manufacturing overhead

=$6+$9+$2+$2 = $19 per unit

Unit fixed manufacturing overhead= fixed manufacturing overhead/No. of units produced

=$64000/32000 units =$2 per unit