Question

QUESTION I (20 MARKS) Teratak Enterprise has just organized a new division to manufacture and sell specially designed e-tables for personal computers. The division's monthly oosts are shown in the schedule below: Manufacturing costs: Variable costs per unit: Direct materials RM86 Direct labor RM10 Variable manufacturing overhead Fixed manufacturing overhead Selling and administrative cost: Variable RM240,000 15% of sales RM160,000 Fixed Duning the current year operations, Teratak Enterprise produced 4,000 units and sold 3,200 units. The selling price of the company's product is RM250 per unit. Required: Compute the unit product cost under: (0 Absorption costing Variable costing (! (5 marks) Prepare an income statement for the month using absorption costing. (5 marks) Prepare a contribution format income statement for the month using variable costing. () (6 marks) Reconcile the absorption costing and variable costing net operating income. (P (4 marks) Page 4 of 8

Answer 1

solution: a. 1. Unit product cost under absorbtion costing Direct Materials Direct labour Variable manufacturing over head Fixed manufacturing overhead =240000/4000 Unit product cost 86.00 10.00 4.00 60.00 160.00 II. Unit product cost under variable costing Direct Materials Direct labour Variable manufacturing overhead Unit product cost 86.00 10.00 4.00 100.00 b.Income Statement Absorption Costing sales =3200*250 Less : cost of goods sold (3200*160) Gross Profit Less : selling and administrative expenses =800000*0.15+160000 net operating income (loss) 800,000 512,000 288,000 [ 280,000 8,000 800,000 320,000 | 120,000 c.Income Statement Variable Costing sales =3200*250 Less : Variable cost of goods sold (3200*160) Less : Variable selling and administrative expenses (800000*0.15) contribution margin fixed expense : Fixed manufacturing over head Fixed selling and administrative expenses net operating income 440,000 360,000 240,000 160,000 400,000 - 40,000 - 40,000 d) Reconciliation variable costing net operating income (Loss) Add: fixed manufacturing overhead cost deferred in inventory under absorbtion costing =(4000-3200)*60 absorbtion costing net operating income (Loss) 48,000 8,000