Fresh Air Products manufactures and sells a variety of camping products. Recentl

Question

Fresh Air Products manufactures and sells a variety of camping products. Recently, the company opened a new plant to manuia sales data for the first month of operations are shown below: Manufacturing Costs Fixed overhead Variable overhead Direct labour Direct material 150,000 $7 per unit $15 per unit $33 per unit Beginning inventory Units produced Units sold 0 units 15,000 11,000 Selling and administrative costs $121,000 $3 per unit sold Fixed Variable The portable cooking unit sells for $90. Management is interested in the opening month's results, and has asked for an income statement. Required: Assume the company uses absorption costing. Calculate the production cost per unit, and prepare an income statement for the month of June 2016

Explanation / Answer

*closing inventory units = No. of units produced - No. of units sold

15000 - 11000 = 4000

Ans.1 Production cost per unit: Variable overhead 7 Direct labor 15 Direct materials 33 Fixed overhead per unit (150000/15000) 10 Total production cost per unit 65 *Fixed overhead per unit = Total fixed manufacturing overhead / No. of Units produced Ans.2 FRESH AIR PRODUCTS Absorption Costing Income Statement PARTICULARS AMOUNT Sales (11000*90) 990000 Less: Cost of goods sold Opening inventory 0 Add: Cost of goods manufactured (15000*65) 975000 Cost of goods available for sale 975000 Less: Closing inventory (4000*65) -260000 Cost of goods sold (total) 715000 Gross margin 275000 Selling & Administrative expenses: Fixed 121000 Variable (11000*3) 33000 Total Selling and administrative expenses 154000 Net Income 121000 Gross margin = Sales - Cost of goods sold Net income = Gross margin - Total selling and administrative expenses

*closing inventory units = No. of units produced - No. of units sold

15000 - 11000 = 4000

*In absorption costing method the fixed manufacturing overhead per unit are also included in the calculation of Production cost per unit.

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