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    Income statement for May: absorption and variable costing

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    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.
    __________________________________

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    Solution Summary

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

    $2.19

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