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# JT Enterprises. Unit product cost using absorption costing

JT Enterprises
Income Statement
For the quarter Ended March 31, 2005

Sales revenue (25,000 units) \$1,200,000
Less Variable Costs:
Variable Costs of goods sold \$540,000
Variable selling and admin expenses \$260,000
Contribution Margin \$800,000
Less Fixed costs:
expenses \$150,000 \$450,000
Net Loss \$(50,000)

The variable costs of goods sold includes the costs of direct materials, direct labor, and variable manufacturing overhead. The company began the quarter with no inventory, it manufactured 30,000 units over the period. Variable selling and administrative expenses are based on units sold.

A. Calculate the unit product cost using absorption costing
B. Rework the income statement using absorption costing
c. Does the net loss figure change using absorption costing? If yes, explain why
D. During the second quarter of operations, JT again manufactured 30,000 units but sold and absorption-costing methods
E. Explain the difference in net income (or loss) in the second quarter between the two statements prepared in requirement (D).

#### Solution Preview

a)
Relevant Costs for the unit production cost under absorption costing
1. Variable cost of goods sold =\$540,000 Unit Cost = 540000/25000=\$21.60
2. Fixed manufacturing overhead = \$300,000 Unit cost = 300000/30000=\$10.00
Total unit production cost = 21.60+10.00=\$31.60

b) Absorption Costing Income Statement
JT Enterprises
Income Statement
For the quarter Ended March 31, 2005

Sales revenue (25,000 units) \$1,200,000
Less Cost of Goods Sold 25000*31.60 \$790,000
Gross margin \$410,000