Calculation of unit product cost
Absorption | Variable | |
Direct material | 4 | 4 |
Direct Labour | 10 | 10 |
Variable manufacturing overhead | 2 | 2 |
Fixed manufacturing overhead | 4 | |
20 | 16 |
Fixed manufacturing overhead cost per unit = Fixes manufacturing overhead/units produced
= 108,000/27,000 = 4/-
Variable costing income statement
July | August | |
Sales | 1,058,000 | 1,426,000 |
Less:Variable expenses | ||
Variable cost of goods sold | 368,000 | 496,000 |
Variable selling and administration expenses | 69,000 | 93,000 |
Total variable expenses | 437,000 | 589,000 |
Contribution margin | 598,000 | 806,000 |
Less :Fixed expenses | ||
Fixed manufacturing overhead | 108,000 | 108,000 |
Fixed selling and administration expenses | 169,000 | 169,000 |
Total fixed expenses | 277,000 | 277,000 |
Net operating income | 344,000 | 560,000 |
Reconciliation of variable costing and absorption costing net operating income
July | August | |
Variable costing net operating income | 344,000 | 560,000 |
Fixed manufacturing overhead deferred in inventory(4,000×4) | 16,000 | |
Fixed manufacturing overhead released from inventory(4,000×4) | (16,000) | |
Net operating income under absorption costing | 360,000 | 544,000 |
____×____
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