Question

Nelter Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price Units in beginning inventory Units produced 119 370 6,420 6,330 460 Units sold Units in ending inventory Variable costs per unit: Direct materials 46 Direct labor 21 Variable manufacturing overhead Variable selling and administrative expense Fixed costs: 2 $ 18 Fixed manufacturing overhead Fixed selling and administrative expense $141,240 56,970 The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. Required: a. Prepare a contribution format income statement for the month using variable costing b. Prepare an income statement for the month using absorption costing.

Answer 1

WORKING NOTES : 1
	beginning Inventory	370	Units
	Unit Produced =	6,420	Units
	Unit Sold =	6,330	Units
	Closing Stock	460	Units
	Selling Price Per unit	$                       119.00	Per Units
	Sales Value	$                    7,53,270
	Variable Selling Expenses p.U	$                          18.00	Per Units
	Fixed Selling expenses	$                 56,970.00
	Fixed Overhead recovery Rate =
	Fixed Manufacturing expenses	$                    1,41,240
	Divide by	"/" By
	Number of units Produced	$                          6,420
	Fixed Overhead recovery Rate =	$                                22	Per Units
WORKING NOTES : 2
	CALCUALTION OF cost of production units by using absorption and variable Costing
	Particulars	Absorption Costing Amount	Variable Costing Amount
	Direct Material Per unit	$                          46.00	$                          46.00
	Direct Labour Per Unit	$                          21.00	$                          21.00
	Vairable Manufacturing Overhead	$                            2.00	$                            2.00
	Fixed Manufacturing Overhead	$                          22.00	$                                 -
	Cost of Production per unit	$                          91.00	$                          69.00
SOLUTION = A)
	ABOSRPTION COSTING INCOME STATEMENTS	Absorption Costing
	Particulars	Amount
	Sales	$                    7,53,270
	Cost of Goods Sold
	Beginning inventory	$                                 -
	Cost of Goods Manufactured (6420 Units X $ 91 Per unit)	$                    5,84,220
	Less: Ending Inventory (460 units $ 91 Per Unit)	$                       41,860
	Cost of Goods Sold	$                    5,42,360
	Gross Profit	$                    2,10,910
	Less : Selling Expenses
	Fixed general and administrative expenses	$                       56,970
	Variable Selling Expenses	$                    1,13,940
	Net Income	$                       40,000
SOLUTION = B)
	VARIABLE COSTING INCOME STATEMENTS	Variable Costing
	Particulars	Amount
	Sales	$                    7,53,270
	Cost of Goods Sold
	Beginning inventory	$                                 -
	Cost of Goods Manufactured (6420 Units X $ 69 Per unit)	$                    4,42,980
	Less: Ending Inventory (460 units X $ 69 Per Unit)	$                       31,740
	Cost of Goods Sold	$                    4,11,240
	Variable Selling Expenses	$                    1,13,940
	Gross Profit	$                    2,28,090
	Less: Fixed Manufacturing overhead	$                    1,41,240
	Less : Fixed Selling Expenses	$                       56,970
	Net Income	$                       29,880