Question

Fringe factory produces fun keychains and has reported the following data for August.

Beginning inventory	0
Units produced	105,000
Units sold	95,000
Selling price per unit	$8
Variable manufacturing cost	$1.40
Variable non-manufacturing cost	$1.25
Fixed manufacturing cost	$210,000
Fixed non-manufacturing cost	$70,000
Absorption Costing Net Income	$248,250

1) What is the product cost per unit using absorption costing?

2) What is the value of ending inventory using absorption costing?

3) What is the product cost per unit using variable costing?

4) What is the value of ending inventory using variable costing?

5) What is net income using variable costing (reconcile this from the absorption costing net income rather than making an income statement using variable costing)?

Answer 1

Amount $ 1) Product cost per unit using absorption costing :- Particulars Variable manufacturing cost Fixed manufacturing cost (210000/105000) Total product cost per unit 1.40 2.00 3.40 Amount $ 2) Value of ending inventory using absorption costing : Particulars Ending inventory units (105000-95000) (A) Product cost per unit (B) Value of ending inventory (A*B) 10,000 3.40 34,000 Amount $ 3) Product cost per unit using variable costing : Particulars Variable manufacturing cost Total product cost per unit 1.40 1.40 Amount $ 4) Value of ending inventory using variable costing :- Particulars Ending inventory units (105000-95000) (A) Product cost per unit (B) Value of ending inventory (A*B) 10,000 1.40 14,000 5) Reconciliation of Absorbtion and Variable costing Income Statements: Particulars Amount $ Income/(Loss) as per absorbtion costing system 2,48,250 Less: Fixed manufacturing overhead in ending inventory Add: Fixed manufacturing overhead in Opening inventory 20,000 (105000-95000)*2.00 Income/(Loss) as per variable costing system 2,68,250