Question

Zurgot Inc. has just organized a new division to manufacture and sell specially designed computer tables, using select hardwoods. The division’s monthly costs are shown in the schedule below:

Manufacturing costs:
Variable costs per unit:
Direct materials	$	197
Variable manufacturing overhead	$	19
Fixed manufacturing overhead costs (total)	$	418,625
Selling and administrative costs:
Variable		5	% of sales
Fixed (total)	$	305,350

Zurgot regards all of its workers as full-time employees, and the company has a long-standing no-layoff policy. Furthermore, production is highly automated. Accordingly, the company includes its labour costs in its fixed manufacturing overhead. The tables sell for $447 each.

During the first month of operations, the following activity was recorded:

Units produced		4,925
Units sold		3,720

Required:

1. Compute the unit product cost under each of the following costing method.

A-Absorption costing

B-Variable Costing

2. Prepare an income statement for the month using absorption costing. (Do not leave any empty spaces; input a 0 wherever it is required.)

3- Prepare a contribution format income statement for the month using variable costing. (Do not leave any empty spaces; input a 0 wherever it is required.)

5. Reconcile the absorption costing and variable costing operating income figures in (2) and (3) above.

Answer 1