Question

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EXERCISE 2 Parbleu Corporation, which operates in France at full capacity, produces two different p and "W". In its cost accoun basis of direct labor-hours worked at full capacity, produces two different products: "" ting system manufacturing overhead costs are applied to products on the Basics information relating to the company's two productsis shown below Product"VV" 4,500 $200 Units sold: Average selling price: Units produced: Direct materials (per unit): Direct labors (per unit): Machine hours (per unit) Sales commission Product"Z” 8,000 $250 7,000 $60.00 5 hours 3 hours 5% 5,000 $50.00 2,5 hours 6 hours 4% The company has provided the following financial data concerning its actual operations for the year ended: Direct materials purchased Direct labor Manufacturing Fixed Overhead Manufacturing Variable Overhead Sales General& Administrative Costs (fixed) Interest Revenues $ 695,000 $ 593,750 $608.000 S 35,625 530,000 $24,700 The initial inventory for Direct material at the beginning of the year was $ 80,000. Final inventory is $105,000. You are required: a) b) to determine the cost of the two products per unit using absorption costing to provide a segmented income statement in which contribution margin and EBIT for the company are shown

Answer 1

a)		Product Z	Product W	Total
	Direct materials (7000*60+5000*50)	420000	250000	670000
	Direct labor (7000*5*12.5/5000*2.5*12.5)	437500	156250	593750
	Variable overhead (7000*5*0.75/5000*2.5*0.75)	26250	9375	35625
	Fixed overhead (7000*5*12.8/5000*2.5*12.8)	448000	160000	608000
	Total cost of production under absorption costing	1331750	575625	1907375
	Number of units produced	7000	5000
	Cost per unit	$        190.25	$        115.13
	Working Notes:
	Total direct labor hours = 7000*5+5000*2.5 =	47500
	Direct labor hour rate = 593750/47500 =	$          12.50
	Direct materials used = 80000+695000-105000 =	670000
	Variable overhead allocation rate = 35625/47500 =	$            0.75	per DLH
	Fixed overhead allocation rate = 608000/47500 =	$          12.80	per DLH
b)		Product Z	Product W	Total
	Sales revenue (8000*250/4500*200)	2000000	900000	2900000
	Variable cost of goods sold	883750	415625	1299375
	Contribution margin	1116250	484375	1600625
	Fixed manufacturing costs			608000
	Sales general and administrative costs (fixed)			530000
	EBIT		`	462625
	Interest revenues			24700
	EBT			487325