Question

Bharat Bicycle, located in India, produces an inexpensive yet rugged bicycle for use on crowded city streets. The company sells the bicycle for 695 rupees. (Indian currency is denominated in rupees, denoted by R.) Selected data for the company’s operations last year follow:

Units in beginning inventory		0
Units produced		11,200
Units sold		9,100
Units in ending inventory		2,100
Variable costs per unit:
Direct materials	R	172
Direct labour	R	194
Variable manufacturing overhead	R	54
Variable selling and administrative	R	41
Fixed costs:
Fixed manufacturing overhead	R	806,400
Fixed selling and administrative	R	537,600

An absorption costing income statement prepared by the company’s accountant appears below:

Sales (9,100 units × R695 per unit)				R	6,324,500
Cost of goods sold:
Beginning inventory	R	0
Add cost of goods manufactured         (11,200 units × R   ?   per unit)		5,510,400
Goods available for sale		5,510,400
Less ending inventory         (2,100 units × R   ?   per unit)		1,033,200			4,477,200
Gross margin					1,847,300
Selling and administrative expenses:
Variable selling and administrative		373,100
Fixed selling and administrative		537,600			910,700
Operating income				R	936,600

Prepare an income statement for the year using the variable costing method.

      

Answer 1

Variable costing Income Statement $ 6,324,500 (9100 x 695) Less $ (11200 x 420) $ Sales Variable expense: Variable Cost of Goods Sold: Beginning Inventory Variable manufacturing costs Goods avaible for sale less: Ending Inventory Variable cost of goods sold Variable Selling & adm expense Contribution Margin Fixed Expense : Fixed Manufacturing Overhead Fixed Selling & administrative expense Net Operating Income 4,704,000 4,704,000 882,000 3,822,000 373,100 (2100 x 420) $ $ (9100 x 41) $ $ 4,195,100 2,129,400 less $ $ 806,400 537,600 $ $ 1,344,000 785,400 Unit Product cost if Company Uses Variable Costing Direct Material Direct Labor Variable Manufacturing Overhead Unit Product cost 172.00 194.00 54.00 420.00