Question

(24 points) ROCKET, INC. open a small manufacturing firm on January 1, 20X1. Sales and Cost data for ROCKET, INC. during the first two months of 20X1 are given below: January February Selling Price (per unit). Fixed Costs (total). Variable Costs (per unit).... Number of units produced. Number of units sold. Required (BE CERTAIN YOU PLACE THE ANSWER IN THE CORRECT SPACE ON THE SEPARATE ANSWER SHEET): Using the FIFO inventory method Absorption Costing Variable (Direct) Costing ROCKET's' income for January is..........1 ROCKET's income for February is............ Using the LIFO inventory method Absorption Costing Variable (Direct) Costing ROCKET's income for January is. ROCKET's income for February is...........1

Answer 1

1. Variable costing:

	Jan	Feb
Selling Price	10	10
Variable cost	1	2
Contribution per unit	9	8

So, Income Statement will be as follows:

	FIFO		LIFO
Months	Jan	Feb	Jan	Feb
Total Contribution	9*11 units = 99	9*4 units + 8*14 units = 148	9*11 units = 99	8*15 units + 9*3 units = 147
Fixed costs	30	30	30	30
Net Income	69	118	69	117

2. Absorption Costing:

	Jan	Feb
Total Variable Cost	15	30
Fixed costs	30	30
Total Costs (A)	45	60
Total Units produced (B)	15	15
Cost per unit (A/B)	3	4

So, Income Statement will be as follows:

	FIFO		LIFO
	JAN	FEB	JAN	FEB
Sales	11*10 units = 110	18*10 units = 180	110	180
Less: Total Costs	3*11 units = 33	3*4 units + 4*14 units = 68	3*11 units = 33	4*15 units + 3*3 units = 69
Net Income	77	112	77	111

so,

FIFO
Particulars	Absorption	Variable
Rocket's Income for Jan	77	69
Rocket's Income for Feb	112	118

and

LIFO
Particulars	Absorption	Variable
Rocket's Income for Jan	77	69
Rocket's Income for Feb	111	117