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Variable and Absorption Costing Unit Product Costs and Incom

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.

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.

$2.19