Question

Check my werk Coverall Inc, produces and sells a unique type of case for a standard-size tablet computer that is guaranteed waterproof but still allows for regular functionality of the tablet. The company has just opened a new plant to manufacture these cases, and the following cost and revenue data have been provided for the first month of the plant's operation in the form of a worksheet 20,000 15,000 $ Beginning inventory Units produced Units sold Selling price per unit Selling and administrative expenses Variable per unit Fixed (total) Manufacturing costs Direct materials cost per unit Direct labour cost per unit Variable manufacturing overhead cost per unit Fixed manufacturing overhead cost (total) es $475,00 $475,000 12 5 5 5 $60,000 Since the new case is unique in design, management is anxious to see how profitable it will be and has asked that an income statement be prepared for the month Required: 1. Assume that the company uses absorption costing

Answer 1

Production cost per unit:

Direct Material cost per unit	$ 12
+ Direct Labor cost per unit	$ 9
+ Manufacturing Variable Overhead cost per unit.	$ 5
+ Manufacturing Fixed Overhead cost per unit (600000/20000)	$ 30
= Product cost per unit	$ 56

Only manufacturing costs are included in product cost per unit (not selling and administrative costs).

Now, the product cost per unit will be used for absorption income statement. But the Units used will be Sold Units for the income statement (not the units produced). Sold units are used for calculation of sales, cost of goods sold and other variable cost.

Income Statement (Absorption costing).
Sales (15,000 * $80 per unit)	$1200,000
Less: Cost of Goods Sold (15,000 * $56 per unit)	(840,000)
Gross Profit		360,000
Less: Operating Expenses:
Selling Expenses (fixed: 475,000 + Variable: 6 * 15,000 units sold)		(565000)
Net Operating Loss		($205,000)