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Income statement for May: absorption and variable costing

The following cost and revenue data relate to May, the first month of the plant's operation:

Beginning inventory 0
Units produced 40,000
Units sold 35,000
Selling price per unit $76
Selling and administrative expenses:
Variable per unit $2
Fixed (total) $562,000
Manufacturing costs:
Direct materials cost per unit $15
Direct labor cost per unit $6
Variable manufacturing overhead cost per unit $2
Fixed manufacturing overhead cost (total) $754,000

Management is anxious to see how profitable the new camp cot will be and has asked that an income statement be prepared for May.

Requirement 1:
Assume that the company uses absorption costing.
(a) Determine the unit product cost.
Unit product cost $________
(b) Prepare an income statement for May.
_____________ $__________
_____________ __________

_____________ __________
_____________ __________
_____________ $__________

Requirement 2:
Assume that the company uses variable costing.
(a) Determine the unit product cost.
Unit product cost $_________
(b) Prepare a contribution format income statement for May.
__________ $___________
Variable expense:
_________ $_________
_________ _________ ___________

__________ ____________
Fixed expense:
_________ _________
_________ _________ ____________
___________ $____________

Requirement 3:
(a) Choose the reason for any difference in the ending inventory balance under the two costing methods.
________________________________

(b) Choose the impact of the difference in the ending inventory balance and costing methods on reported net operating income.
__________________________________

Solution Summary

The income statement for May is determined. The absorption and variable costing is determined.

$2.19