Baxter products, inc., began operations in october and manufactured 30,000 units

Question

Baxter products, inc., began operations in october and manufactured 30,000 units during the month with the following unit costs:

direct materials      $6.00

direct labor                3.00

variable overhead     2.00

fixed overhead*        10.00

variable marketing cost    2.50

*fixed overhead per unit = 300,000/30,000 units produced = 10

total fixed factory overhead is 300,000 per month. During october, 28,000 units were sold at a price of $35, and fixed marketing and administrative expenses were $130,500

required:

1. calculate the cost of each unit using absorption costing

2. how many units remain in ending inventory? what is the cost of ending inventory using absorption costing?

3.prepare an absortion costing income statement for Baxter products inc. for the month of october

4. what if november production was 30,000 units, cost were stable, and sales were $31,000 units? what is the cost of ending inventory ? what is operating income for november?

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Unit Product Cost = 6 (Direct Material) + 3 (Direct Labor) + 2(Variable Overhead) + 10 (Fixed Overhead) = 21 per unit

Part B:

Inventory at Hand = Production - Sales = 30000 - 28000 = 2000 units

Value of Ending Inventory = 2000*21 = 42000

Part C:

Income Statement

Part D:

Cost of Ending Inventory = 1000*21 = 21000

Thanks,

Sales (28000*35) 980000 Less Cost of Goods Sold (28000*21) 588000 Gross Profit 392000 Less Operating Expenses
Variable marketing cost (28000*2.5) 70000 Fixed marketing and administrative expenses 130500 Net Income 191500

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