Question

DC and Marvel would like to evaluate one of the product lines that they sell to defense department. Every month the Stark and Company produce an identical number of units, although the sales in units differ from month to month.

Selling price	$111	109
Units in beginning inventory	400	360
Units produced	8,800	6900
Units sold	8,900	7200
Variable costs per unit:
Direct materials	$34	29
Direct labour	$37	31
Variable manufacturing overhead	$3	2
Variable selling and administrative	$9	7
Fixed costs:
Fixed manufacturing overhead	$61,600	53,500
Fixed selling and administrative	$169,100	145,000

Required:

1)     Compute the total Contribution Margin.

2)     Compute the Operating Income under Variable Costing.

3)     Prepare a reconciliation from your Variable Costing Operating Income to compute Operating Income under absorption costing.

Answer 1

Assuming both are different situation
ans 1
Variable costing income statement
Sales	987900	799200
	(8900*111)	(7200*111)
Variable costs per unit:
Direct materials	302600	208800
	(8900*34)	(7200*29)
Direct labour	329300	223200
	(8900*37)	(7200*31)
Variable manufacturing overhead	26700	14400
	(8900*3)	(7200*2)
Variable selling and administrative	80100	64800
	(8900*9)	(7200*9)
Total variable cost	738700	511200
Contribution margin	249200	288000	ans 1
Fixed costs:
Fixed manufacturing overhead	$61,600	53,500
Fixed selling and administrative	$169,100	145,000
Net operating Income	$18,500	$89,500	ans 2
ans 3
Income under variable costing	$18,500	$89,500
Add: Deferred Fixed manufacturing overhead in ending inventory	2100	465
Income under absorption costing	$20,600	$89,965
working
Fixed manufacturing overhead deferred
	2100	465
	61600/8800*300	53500/6900*60