Question

Problem 8.30A a-b Alta Products Ltd. has just created a new division to manufacture and sell DVD players. The facility is highly automated and thus has high monthly fixed costs, as shown in the following schedule of budgeted monthly costs. This schedule was prepared based on an expected monthly production volume of 2,000 units. $29 67,200 Manufacturing costs Variable costs per unit Direct materials Direct labour Variable overhead Total fixed overhead Selling and administrative costs Variable Fixed During August 2020, the following activity was recorded: Units produced Units sold Selling price per unit 5% of sales $50,000 2,000 1,500 $179 Assume the company uses normal costing and uses the budgeted volume of 2,400 units to allocate the fixed overhead rate rather than the actual production volume of 2,000 units. The company expenses production volume variance to cost of goods sold in the accounting period in which it occurs. Do the following: 1. Calculate the manufacturing cost per unit. Manufacturing coste per unit

Answer 1

1.

Manufacturing cost per unit
	Per unit	For 2000 units
		=(per unit X 2000)
Direct material	29	58000
Direct Labour	39	78000
Variable o/h	9	18000
Total fixed o/h		67200
Total Manufacturing cost (A)		221200
No. of units (B)		2000
Per unit mfg cost (A/B)		110.6

	Sales		268500
			(1500*179)
	Cost of goods sold
	Beginning inventory	0
Add	Cost of goods Manufactured
	Cost of goods sold	157500
		(105*1500)
Add	Volume variance	19533	177033
	Gross Margin		91467
Less	Seiing and admin exps
	Variable	13425
	Fixed	31250
			44675
	Noramal costing net income		46792

3.

Normal costing net income		46792
Additoinal fixed MOH in closing inventory **		4883
Absorption costing net income		51675

**

	Fixed overhead rate normal costing	Fixed overhead rate Absorption costing	Excess overhead In Absorption costing	Closing stock	Excess profit under absorption
Manufacturing overhead	28	33.6	5.6	500	2800
	(67200/2400)	(67200/2000)
selling overhead	20.833	25	4.167	500	2083.5
	(50000/2400)	(50000/2000)	9.767		4883.5