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    Variable and Absorption Costing Unit Product Costs and Incom

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    Company just opened a new plant to manufacture antennas and the following cost and revenue data has been provided for the first month of the plant's operation:

    Beginning inventory: 0
    Units produced: 40,000
    Units sold: 35,000
    Selling price per unit: $50

    Selling and administrative expenses:
    Variable per unit: $2
    Fixed (total) $560,000
    Manufacturing costs:
    Direct materials cost per unit: $15
    Direct labor and cost per unit: $7
    Variable manufacturing overhead cost per unit: $2
    Fixed manufacturing overhead cost (total): $640,000

    Since the antenna is unique in design management is anxious to see how profitable it will be and has asked that an income statement be prepared for the month.
    Assume that the company uses absorption costing.
    Determine the unit product cost
    Prepare an income statement for the month
    Assume that the company uses variable costing
    Determine the unit product cost
    Prepare a contribution format income statement for the month.
    Explain the reason for any difference in the ending inventory balances under the two costing methods and the impact of this difference on reported net operating income.

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    Solution Preview

    Variable and Absorption Costing Unit Product Costs and Income Statements
    Company just opened a new plant to manufacture antennas and the following cost and revenue data has been provided for the first month of the plant's operation:

    Beginning inventory: 0
    Units produced: 40,000
    Units sold: 35,000
    Selling price per unit: $50

    Selling and administrative expenses:
    Variable per unit: $2
    Fixed (total) $560,000
    Manufacturing costs:
    Direct materials cost per unit: $15
    Direct labor and cost per unit: $7
    Variable manufacturing overhead cost per unit: $2
    Fixed manufacturing overhead cost (total): $640,000

    Since the antenna is unique in design management is anxious to see how profitable it will be and has asked that an income statement be prepared for the month.
    Assume ...

    Solution Summary

    This solution is comprised of a detailed explanation to determine the unit product cost and prepare a contribution format income statement for the month for variable and absorption costing methods.

    $2.49

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