Question

Simpsons plc calculated variable manufacturing costs of $1 for each bottle of its Duff beer. This includes already direct materials & direct labour. Total manufacturing costs per unit are calculated to amount to $1.20 per bottle. The fixed manufacturing costs of $6,000 (see below) were allocated to products based on the budgeted production level of 30,000 units/month. The company produces exactly the quantity that it had planned, i.e. 30,000 bottles/month, but it sold only 29,000 bottles this month. Opening inventory at the beginning of this month: 200 bottles. Selling price per unit $1.70 Fixed manufacturing costs $6,000 Fixed advertising expenses per month $2,500 Fixed administrative expenses per month $4,000 Variable sales commission per unit sold $0.10 1) Set up the income statement applying full absorption costing and calculate a) the gross profit: $ (no space or comma to separate groups of thousands), and b) the operating profit: $ (no space or comma to separate groups of thousands) 2) Set up the income statement applying marginal costing and calculate a) the total contribution for this month: $ (no space or comma to separate groups of thousands), and b) the operating profit for this month: $ (no space or comma to separate groups of thousands)

Answer 1

Solution -1

a. Gross Profit : $14500

b. Operating Profit:- $5100

Solution-2

a. Contribution = 17400

b. Operating Profit=4900

Detail working for your refrence

Income Statement A- Absorption Costing
Sales : (-29000 UntX1.70)		$49,300.00
Less: Cost of Goods Sold
Beginning Inventory (200X 1.20)	$240.00
Cost of Goods Manufactured ( 1.20X 30000)	$36,000.00
Total Cost of Goods Available for Sale	$36,240.00
Less: Ending Inventory ( 200+30000-29000)*1.20	-$1,440.00
Cost of goods SOld		$34,800.00
Gross Profit		$14,500.00
Less: Operating Expense
Variable Sales commission Expense (29000*0.10)	$2,900.00
Fixed Selling & Admin Expense (2500+4000)	$6,500.00
Total operating Expense		$9,400.00
Operating income		$5,100.00
Income Statement As per Variable Costing
Sales : (-29000 UntX1.70)		$49,300.00
Less: Variable Cost of Goods Sold
Beginning Inventory (200X1)	$200.00
Add: Cost of Goods Manufactured (30000X1)	$30,000.00
Total Cost of Goods Available for Sale	$30,200.00
Less: Ending inventory (200+30000-29000)*1	-$1,200.00
Cost of goods SOld		$29,000.00
Manufactureing Margin		$20,300.00
Less: Other Variable expense
Variable Sales commision Expense (29000*0.10)		-$2,900.00
Contribution Margin		$17,400.00
Less: Fixed Expense
Fixed Manufacturing Overhead	$6,000.00
Fixed Selling & Admin Expense (2500+4000)	$6,500.00
Total operating Expense		$12,500.00
Operating ncome		$4,900.00