Sandi Scott obtained a patent on a small electronic device and organized Scott P

Question

Sandi Scott obtained a patent on a small electronic device and organized Scott Products, Inc., to produce and sell the device. During the first month of operations, the device was very well received on the market, so Ms. Scott looked forward to a healthy profit. For this reason, she was surprised to see a loss for the month on her income statement. This statement was prepared by her accounting service, which takes great pride in providing its clients with timely financial data. The statement follows:

    Ms. Scott is discouraged over the loss shown for the month, particularly because she had planned to use the statement to encourage investors to purchase stock in the new company. A friend, who is a CPA, insists that the company should be using absorption costing rather than variable costing. He argues that if absorption costing had been used, the company would probably have reported a profit for the month.

Selected cost data relating to the product and to the first month of operations follow:

Compute the unit product cost under absorption costing. (Round your intermediate and final answers to 2 decimal places.)

Redo the company%u2019s income statement for the month using absorption costing. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places. Round your final answers to the nearest whole number.)

Reconcile the variable and absorption costing net operating income (loss) figures. (Loss amounts and amounts to be deducted should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places. Round your final answers to the nearest whole number.)

During the second month of operations, the company again produced 24,000 units but sold 27,000 units. (Assume no change in total fixed costs.)

Prepare a contribution format income statement for the month using variable costing. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places. Round your final answers to the nearest whole number.)

Prepare an income statement for the month using absorption costing. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places. Round your final answers to the nearest whole number.)

Reconcile the variable costing and absorption costing net operating incomes. (Loss amounts and amounts to be deducted should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places. Round your final answers to the nearest whole number.)

Scott Products, Inc.
Income Statement   Sales (21,000 units) $ 762,300         Variable expenses:      Variable cost of goods sold $ 245,700           Variable selling and administrative expenses 164,850      410,550         Contribution margin 351,750         Fixed expenses:      Fixed manufacturing overhead 201,600           Fixed selling and administrative expenses 216,000      417,600         Net operating loss $ ( 65,850)     

Explanation / Answer

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