Question

Zintel, a telecommunication company located in South America manufactures Micro Chips for Smart  operations data were as follows:

Required:

 a. Calculate the unit product cost using the variable costing method.

 b. Prepare an income statement using the variable costing method.

 c. Calculate the unit product cost using the Absorption costing method

 d. Prepare an income statement using the Absorption costing method

 e. Calculate and explain the difference in the reported net operating income between the above me

Answer 1

a. Computation of unit product cost under Variable costing method:

	$
Direct materials cost per unit	$50
Direct labor cost per unit	32
Variable manufacturing overhead per unit	10
Unit product cost under variable costing	$92

Unit Product cost under Variable Costing = $92 per unit

b. Statement showing the income statement using the variable costing method:

Variable Costing Income Statement
	$	$
Sales (8,000 * $120)		$960,000
Less: Variable Cost of Goods Sold
Variable Cost of Goods Manufactured (10,000 units * $92)	$920,000
(-) Ending Inventory (2,000 units * $92)	$184,000	$736,000
Gross Contribution Margin ($960,000 - $736,000)		$224,000
Less: Variable Selling and Administrative Expense (8,000 * $8)		$64,000
Contribution Margin ($224,000 - $64,000)		$160,000
Less: Period Expenses:
Fixed Manufacturing Overhead	$110,000
Fixed Selling and Administrative Expense	$30,000	$140,000
Net Opearating income ($160,000 - $140,000)		$20,000

c. Computation of unit product cost under Absorption costing method:

Fixed manufacturing overhead per unit = Fixed manufacturing overhead / Units Produced

= $110,000 / 10,000 units = $11 per unit

	$
Direct materials cost per unit	$50
Direct labor cost per unit	32
Variable manufacturing overhead per unit	10
Fixed manufacturing overhead per unit	11
Unit product cost under Absorption costing	$103

Unit Product cost under Absorption Costing = $103 per unit

b. Statement showing the income statement using the Absorption costing method:

Absorption Costing Income Statement
	$	$
Sales (8,000 * $120)		$960,000
Less: Variable Cost of Goods Sold
Cost of Goods Manufactured (10,000 units * $103)	$1,03,0000
(-) Ending Inventory (2,000 units * $103)	$206,000	$824,000
Gross Profit ($960,000 - $824,000)		$136,000
Less: Selling and Administrative Expense
Variable Selling and Administrative Expense (8,000 * $8)	$64,000
Fixed Selling and Administrative Expense	$30,000	$94,000
Net Opearating income ($136,000 - $94,000)		$42,000

d. Reconsiliation Statement:

	$
Net operating income under Absorption costing	$42,000
Net operating income under Variable costing	$20,000
Difference in Net operating income ($42,000 - $20,000)	$22,000
Change in inventory (10,000 units - 8,000 units)	2,000 units
Fixed manufacturing overhead deferred in inventory (2,000 units * $11)	$22,000

Answer 2

a. Computation of unit product cost under Variable costing method:

	$
Direct materials cost per unit	$50
Direct labor cost per unit	32
Variable manufacturing overhead per unit	10
Unit product cost under variable costing	$92

Unit Product cost under Variable Costing = $92 per unit

b. Statement showing the income statement using the variable costing method:

Variable Costing Income Statement
	$	$
Sales (8,000 * $120)		$960,000
Less: Variable Cost of Goods Sold
Variable Cost of Goods Manufactured (10,000 units * $92)	$920,000
(-) Ending Inventory (2,000 units * $92)	$184,000	$736,000
Gross Contribution Margin ($960,000 - $736,000)		$224,000
Less: Variable Selling and Administrative Expense (8,000 * $8)		$64,000
Contribution Margin ($224,000 - $64,000)		$160,000
Less: Period Expenses:
Fixed Manufacturing Overhead	$110,000
Fixed Selling and Administrative Expense	$30,000	$140,000
Net Opearating income ($160,000 - $140,000)		$20,000

c. Computation of unit product cost under Absorption costing method:

Fixed manufacturing overhead per unit = Fixed manufacturing overhead / Units Produced

= $110,000 / 10,000 units = $11 per unit

	$
Direct materials cost per unit	$50
Direct labor cost per unit	32
Variable manufacturing overhead per unit	10
Fixed manufacturing overhead per unit	11
Unit product cost under Absorption costing	$103

Unit Product cost under Absorption Costing = $103 per unit

b. Statement showing the income statement using the Absorption costing method:

Absorption Costing Income Statement
	$	$
Sales (8,000 * $120)		$960,000
Less: Variable Cost of Goods Sold
Cost of Goods Manufactured (10,000 units * $103)	$1,03,0000
(-) Ending Inventory (2,000 units * $103)	$206,000	$824,000
Gross Profit ($960,000 - $824,000)		$136,000
Less: Selling and Administrative Expense
Variable Selling and Administrative Expense (8,000 * $8)	$64,000
Fixed Selling and Administrative Expense	$30,000	$94,000
Net Opearating income ($136,000 - $94,000)		$42,000

d. Reconsiliation Statement:

	$
Net operating income under Absorption costing	$42,000
Net operating income under Variable costing	$20,000
Difference in Net operating income ($42,000 - $20,000)	$22,000
Change in inventory (10,000 units - 8,000 units)	2,000 units
Fixed manufacturing overhead deferred in inventory (2,000 units * $11)	$22,000