Mario\'s Foods produces frozen meals, which it sells for $9 each. The company us

Question

Mario's Foods produces frozen meals, which it sells for $9 each. The company uses the FIFO invenotry costing method, and it computes a new monthy fixed manufactoring overhead rate based on the actual number of meals produced that month. All cost and production levels are exactly as planned. The following data are from the company's first two months in business:

Requirements:

1. Compute the product cost per meal produced underabsorption costing and under variable costing. Do this first for January, and then for Febuary.

2. Prepare seperate monthly income statements for January and for February, using the following:

a. Absorrption costing

b. Variable Costing

3. Is operating income higher under absorption costing or variable costing in January? In February? Explain the pattern of differences in operating income based on absorption costing versus variable costing.

Requirement 1. Compute the product cost per meal under absortion costing and under variable costing. Do this first for January and the Febuary

Requirement 2a. Prepare seperate monthly income statements for January and for Feb, using absorption costing

Mario's Foods o

Contribution Margin Income Statement (variable costing)

Month Ended

BELOW ARE THE ONLY OPTIONS TO MAKE INCOME STATEMENTS FOR BOTH STATEMENTS FOR 2A AND 2B

Contribution margin, Cost of goods sold, fixed expenses, fixed manufactoring overhead, fixed opearting expenses, gross profit, operating expense, sales revenue, variable cost of goods solds, variable expenses, variable operating expenses

Requirements 2b. Prepare Mario's Foods' January February income statements using variable costing.

Marios's Food Cotribution Margin Income Statement (variable Costing_ Month Ended)

JAN FEB Sales........................ 1,600 meals 1,900 meals Production............... 2,000 meals 1,600 meals Variable manufactoring expense per meal $5 $5 Sales commision expense per meal $2 $2 Total fixed manfucuring overhead $800 $800 Total fixed makerting and administrative expenses $700 $700

Explanation / Answer

1) JAN FEB Absorption Variable Absorption Variable Variable Manufacturing expense per meal $5 $5 $5 $5 Total fixed Manufacturing overhead per unit 0.4                  -   0.4                  -   Total product cost per meal $5.40 $5.00 $5.40 $5.00 Fixed manufacuring overhead per unit=800/2000 =0.4 Note: Marketing and administrative expenses are period costs and are not relevant in the computation of unit product cost. 2a) Income statement under absorption costing Jan Feb Sales 14400 (1600*9) 17100 (1900*9) LESS: cost of goods sold 8640 (1600*5.4) 10260 (1900*5.4) Gross profit 5760 6840 Less : sales commission 3200 (1600*2) 3800 (1900*2) Less: Total fixed marketing and administrative expenses $700 700 Net operating income $1,860 $2,340 Income statement under variable costing Jan Feb Sales 14400 17100 Less: cost of goods sold 8000 (1600*5) 9500 (1900*5) Gross Contribution margin 6400 7600 Variable marketing expenses 3200 (1600*2) 3800 (1900*2) 3200 3800 Less perod cost: Total fixed Manufacturing overhead $800 $800 Total fixed marketing and administrative expenses $700 $700 Net operating income $1,700 $2,300

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