Question

Q.3. New Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price........ $91 Units in beginning inventory 100 Units produced 1,800 Units sold 1,400 Units in ending inventory... 500 Variable costs per unit: Direct materials... $49 Direct labor $13 Variable manufacturing overhead $2 Variable selling and administrative.... $7 Fixed costs: Fixed manufacturing overhead $14,400 Fixed selling and administrative $7,000 The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. Required: a. Prepare an income statement for the month using the contribution format and the variable costing method. b. Prepare an income statement for the month using the absorption costing method (5+5=10)

Answer 1

Answer > . Income statement for the month using the variable costing method New company Income Statement (variable costing method) Particulars Amount Sales revenue C1,400 units X $ 90 $ 127,400 less: Variable cost of goods sold : Direct materials (18 countsx $u $ 88,200 Direct labor (1,800units X $ 13) $23,400 Variable manufacturing overhead $ 3,600 (liboo units x$2 $1,15,200 Beginning Inventory (hoounits x ¢34) $ 6,400 Ending Inventory ($45200 x 500 $32,000) 1800 units units) $89,600 Gross Contribution margin $ 37,800 less: Vaziable selling and administrative (1/400 units x $ 7 $(1,800 Net contribution margin $ 28000 lesso Fixed costs : $14400 Fixed manufactusing overhead Fixed Seving and administrative $ 7,000 $21400) Net income for the month $ 6,600

method Net income for the month > b. Income statement for the month using the abses ption Costing method 8 New company Income statement (Absorbtion costing Particulars Amount Sales revenue ( 1,400 units x $9) $1,27,400 less: Cost of goods sold ! Direct materials C1,800 unitsx $49 $88200 Direct labor (1,800 units * $ 13 $23,400 Variable manufactysing overhead (18dounits X $ 2) $ 3,600 Fixed manufacturing overhead $14,400 Cost of goods manufactured $ 129,600 Beginning inventory Cloo unitsx $ +2 $ 7,200 Ending inventory (5counits x $129600) $66.00 1,800 units) $6,09800 Gross profit $ 25,600 less: Fixed selling and administrative $4,000 variable selling and administrative (1,400 X $ + $9.800